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Securities
At fair value through profit or loss 44,000 40,790 3,210 − Interest rate(4) and other(5)
Available-for-sale 9,744 − 9,744 − Interest rate(4) and equity(6)
Securities purchased under reverse repurchase
agreements and securities borrowed 21,449 − 21,449 − Interest rate(4)(7)
Loans, net of allowances 88,384 1,588 86,796 − Interest rate(4)
Customers' liability under acceptances 8,954 − 8,954 − Interest rate(4)
Derivative financial instruments 5,904 5,252 652 − Interest rate(8)
Accrued benefit asset 131 − 131 − Other(9)
Other 6,057 − − 6,057
188,219 47,635 133,742 6,842
Liabilities
Deposits 102,111 2,055 100,056 − Interest rate(4)
Acceptances 8,954 − 8,954 − Interest rate(4)
Obligations related to securities sold short 18,909 18,909 − −
Obligations related to securities sold under repurchase
agreements and securities loaned 19,746 − 19,746 − Interest rate(4)(7)
Derivative financial instruments 4,858 4,559 299 − Interest rate(8)
Liabilities related to transferred receivables 15,323 2,028 13,295 − Interest rate(4)
Accrued benefit liability 202 − 202 − Other(9)
Other 6,737 109 − 6,628
Subordinated debt 2,426 − 2,426 − Interest rate(4)
179,266 27,660 144,978 6,628
(1) Certain amounts have been adjusted to reflect changes in accounting standards. See Note 2 to the unaudited
interim condensed consolidated financial statements.
(2) Trading positions whose main risk measures are VaR and SVaR. For additional information, see the Market Risk
Management section in Note 5 to the audited annual consolidated financial statements as at October 31, 2013.
(3) Non-trading positions that use other risk measures.
(4) For additional information, see the Market Risk Management section in Note 5 to the audited annual consolidated
financial statements as at October 31, 2013.
(5) See the Master Asset Vehicles section in Note 6 to the audited annual consolidated financial statements as at
October 31, 2013.
(6) The fair value of equity securities classified as available-for-sale is disclosed in Notes 3 and 5 to the
unaudited interim condensed consolidated financial statements.
(7) These instruments are recorded at amortized cost and subject to credit risk for capital management purposes. For
transactions with maturities of more than one day, the interest rate risk is included in the VaR and SVaR measures when
they relate to trading activities.
(8) See Notes 15 and 16 to the audited annual consolidated financial statements as at October 31, 2013.
(9) See Note 22 to the audited annual consolidated financial statements as at October 31, 2013.
The first table below shows the VaR distribution of trading portfolios by risk category as well as the correlation effect.
The second table shows the SVaR distribution, i.e., the VaR of the Bank's current portfolios obtained following the
calibration of risk factors over a 12-month stress period.
VaR of Trading Portfolios by Risk Category(1)
(millions of Canadian dollars) Quarter ended Nine months ended
July 31, 2014 April 30, 2014 July 31, 2013 July 31, 2014 July 31, 2013
Low High Average Period end Average Period end Average Period end Average Average
Interest rate (3.9) (6.7) (4.8) (5.9) (4.8) (6.1) (6.4) (5.8) (4.8) (6.8)
Foreign exchange (1.5) (2.6) (2.0) (2.5) (1.8) (2.1) (0.8) (1.1) (1.9) (0.7)
Equity (3.5) (5.6) (4.5) (3.5) (4.9) (4.7) (4.2) (4.7) (4.7) (4.8)
Commodity (0.7) (1.5) (1.0) (1.1) (0.9) (0.9) (1.1) (1.1) (1.0) (1.2)
Correlation effect(2) n.m. n.m. 5.7 6.1 5.5 6.8 5.4 5.1 5.7 5.9
Total trading VaR (5.7) (7.9) (6.6) (6.9) (6.9) (7.0) (7.1) (7.6) (6.7) (7.6)
SVaR of Trading Portfolios by Risk Category(1)
(millions of Canadian dollars) Quarter ended Nine months ended
July 31, 2014 April 30, 2014 July 31, 2013 July 31, 2014 July 31, 2013
Low High Average Period end Average Period end Average Period end Average Average
Interest rate (6.9) (11.8) (8.9) (10.3) (9.8) (11.1) (8.7) (7.3) (9.4) (9.5)
Foreign exchange (2.5) (6.3) (4.3) (6.3) (4.3) (4.1) (1.1) (1.1) (4.3) (1.1)
Equity (6.0) (16.7) (11.0) (7.2) (13.2) (12.1) (6.5) (8.5) (12.1) (6.8)
Commodity (0.6) (2.6) (1.2) (0.9) (1.4) (0.6) (1.8) (2.0) (1.3) (1.9)
Correlation effect(2) n.m. n.m. 14.0 15.1 13.7 13.8 8.9 8.1 13.9 9.1
Total trading SVaR (8.8) (16.1) (11.4) (9.6) (15.0) (14.1) (9.2) (10.8) (13.2) (10.2)
n.m. Computation of a correlation effect for the high and low is not meaningful, as highs and lows may occur on different
days and be attributable to different types of risk.
(1) Amounts are presented on a pre-tax basis and represent one-day VaR or SVaR using a 99% confidence level.
(2) The correlation effect is the result of the diversification of types of risk.
As shown in the tables, the total trading VaR and SVaR are generally lower than the sum of the individual risk factor
results, which shows the correlation effect. Average trading VaR was $6.6 million for the quarter ended July 31, 2014, down
$0.3 million from the quarter ended April 30, 2014, mainly due to lower equity VaR.Average trading SVaR was $11.4 million
for the quarter ended July 31, 2014, down $3.6 million from $15.0 million the preceding quarter. This decrease was mainly
caused by a lower SVaR for the equity risk category. Trading VaR was relatively stable during the third quarter, posting
highs and lows in May 2014, whereas trading SVaR peaked in early May 2014 and subsequently decreased towards the end of the
quarter.
Daily Trading Revenues
The following table shows daily trading revenues and VaR. Daily trading revenues were positive more than 98% of the days
for the quarter ended July 31, 2014. Net daily trading losses in excess of $1 million were recorded on only one day. None
of these losses exceeded the VaR limit.
Quarter ended July 31, 2014
(millions of Canadian dollars)
Interest Rate Sensitivity - Non-Trading Activities (Before Tax)
The following tables present the potential before-tax impact of an immediate and sustained 100-basis-point increase or
decrease in interest rates on net interest income for the next 12 months and on the economic value of equity in the Bank's
non-trading portfolios, assuming no further hedging is undertaken.
(millions of Canadian dollars) As at July 31, 2014
Impact on equity Impact on interest income
Canadian dollar U.S. dollar Total Canadian dollar U.S. dollar Total
100-basis-point increase in the interest rate (102) (3) (105) 13 8 21
100-basis-point decrease in the interest rate 78 (1) 77 (13) (11) (24)
(millions of Canadian dollars) As at October 31, 2013
Impact on equity Impact on interest income
Canadian dollar U.S. dollar Total Canadian dollar U.S. dollar Total
100-basis-point increase in the interest rate (148) 15 (133) (13) 17 4
100-basis-point decrease in the interest rate 122 (17) 105 2 (19) (17)
Liquidity Risk
Liquidity risk is the risk that the Bank will be unable to honour daily cash and collateral pledging commitments without
resorting to costly and untimely measures. Liquidity risk arises when sources of funds become insufficient to meet
scheduled payments under the Bank's commitments. Liquidity risk stems from mismatched cash flows related to assets and
liabilities as well as the characteristics of certain products such as credit commitments and non-fixed-term deposits.
Regulatory Context
The regulatory environment with respect to liquidity has evolved significantly since the financial crisis. The Bank is
working closely with international and national regulators to implement regulatory liquidity standards.
In December 2010, the Basel Committee on Banking Supervision (BCBS) issued a document entitled Basel III: International
Framework for Liquidity Risk Measurement, Standards and Monitoring, which essentially covered a proposed application of two
regulatory ratios: the Liquidity Coverage Ratio (LCR), which is intended to see banks through severe short-term stress, and
the Net Stable Funding Ratio (NSFR), whose objective is to ensure that banks have the long-term funding needed to fund less
liquid assets. The LCR rules were finalized in January 2013 and will come into effect in January 2015.
In January 2014, BCBS issued a new consultative paper to finalize the NSFR rules and is still on schedule to implement this
ratio in 2018
. The Bank has already begun monitoring both ratios and reports them to OSFI monthly.
In February 2012, OSFI updated its liquidity management guideline for financial institutions. The revised guideline was
developed based on the BCBS's Principles for Sound Liquidity Risk Management and Supervision. The Bank is in compliance
with this guideline.
In April 2013, the BCBS issued a paper on intraday liquidity entitled Monitoring Tools for Intraday Liquidity Management.
The intent of this document is to provide guidance for banks on their management of intraday liquidity risk and ability to
meet payment and settlement obligations on a timely basis. The implementation schedule proposed ranges from January 2015 to
January 2017 at the latest.
On May 30, 2014, OSFI issued its final Liquidity Adequacy Requirements (LAR) guideline. The LAR guideline is the new
liquidity framework proposed by OSFI. It contains the following six chapters: Overview, Liquidity Coverage Ratio (LCR), Net
Stable Funding Ratio (NSFR), Net Cumulative Cash Flow (NCCF), Liquidity Monitoring Tools and Intraday Liquidity Monitoring
Tools. The Net Cumulative Cash Flow (NCCF) metric is defined as a monitoring tool that calculates survival period. It is
based on the assumptions of a stress scenario prescribed by OSFI that aims to represent a combined systemic and
bank-specific crisis.
In July 2014, OSFI also issued Public Disclosure Requirements for Domestic Systemically Important Banks on Liquidity
Coverage Ratio, a draft guideline that is based on the BCBS's final LCR rules that prescribe a common disclosure framework
with standardized formats across the banking industry.
Lastly, in August 2014, the Government of Canada's Department of Finance issued a consultation paper on a proposed bail-in
regime applicable to D-SIBs entitled Taxpayer Protection and Bank Recapitalization Regime. The Bank is currently assessing
the impact of adopting this regime and must provide comments on the proposal by September 12, 2014.
Liquid Assets
To protect depositors and creditors from unexpected crisis situations, the Bank holds a portfolio of unencumbered liquid
assets that can be easily liquidated to meet financial obligations. This portfolio consists of highly liquid securities,
most of which are issued or guaranteed by governments, and of cash loans with maturities less than 30 days. The majority of
unencumbered liquid assets are denominated in Canadian or U.S. dollars. Moreover, all assets that are readily transferable
into cash are considered liquid assets. The Bank does not consider any central bank's emergency liquidity facilities in its
liquidity reserve. The following tables provide information on the Bank's encumbered and unencumbered assets.
Liquid Asset Portfolio
(millions of Canadian dollars) As at July 31, 2014 As at October 31, 2013
Bank-owned (1) Liquidassetsreceived (2) Total Encumbered (3) Unencumbered Unencumbered liquid assets
liquid assets liquid assets liquid assets
liquid assets
Cash and deposits with financial institutions 5,912 − 5,912 996 4,916 3,548
Securities
Issued or guaranteed by Canada, U.S. Treasury,
other U.S. agencies and other foreign governments 16,060 18,104 34,164 24,183 9,981 10,964
Issued or guaranteed by provinces 11,376 12,011 23,387 19,351 4,036 3,615
Issued or guaranteed by municipalities and school boards 790 209 999 137 862 682
Other debt securities 4,157 1,388 5,545 1,577 3,968 2,365
Equity securities 21,189 29,698 50,887 32,901 17,986 16,092
Loans
Securities backed by insured residential mortgages 2,176 − 2,176 530 1,646 620
As at July 31, 2014 61,660 61,410 123,070 79,675 43,395
As at October 31, 2013 57,310 58,757 116,067 78,181 37,886
(millions of Canadian dollars) As at July 31, 2014 As at October 31, 2013
Unencumbered Bank-owned liquid assets by entity
National Bank (parent) 30,864 26,355
Domestic subsidiaries 7,260 8,475
Foreign subsidiaries and branches 5,271 3,056
43,395 37,886
(millions of Canadian dollars) As at July 31, 2014 As at October 31, 2013
Unencumbered Bank-owned liquid assets by currency
Canadian dollar 27,526 24,533
U.S. dollar 14,712 12,840
Other currencies 1,157 513
43,395 37,886
Liquid Asset Portfolio - Average(4)
(millions of Canadian dollars) Quarter ended July 31, 2014
Bank-owned (1) Liquidassetsreceived (2) Total Encumbered (3) Unencumbered liquid
liquid assets liquid assets assets
liquid assets
Cash and deposits with financial institutions 9,092 − 9,092 335 8,757
Securities
Issued or guaranteed by Canada, U.S. Treasury,
other U.S. agencies and other foreign governments 17,160 19,457 36,617 26,398 10,219
Issued or guaranteed by provinces 11,925 12,334 24,259 19,984 4,275
Issued or guaranteed by municipalities and school boards 787 201 988 133 855
Other debt securities 3,359 1,356 4,715 1,488 3,227
Equity securities 21,372 27,753 49,125 32,262 16,863
Loans
Securities backed by insured residential mortgages 1,991 − 1,991 665 1,326
65,686 61,101
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