Mega Bank Annual Report 2017

26 Mega Bank -26- Item Content D. Market Risk Hedging or Mitigation Policy, and Strategies and Procedures for Monitoring the Continuing Effectiveness of Hedging and Mitigation Instruments 1. The hedging strategy of the Bank is to use spot or derivative financial products as hedging tools to avoid market risk. Targeting the financial products to be hedged and the tools used to hedge, the Bank combines positions and profit/loss stop limits of both and evaluates whether if they are within acceptable range and whether the currently used risk management measures are appropriate. 2. If the assessed risk is too high, the Bank will transfer the risk by reducing the exposure or adopting other approved hedging methods to reduce the risk to a tolerable range. E. Method of Legal Capital Allocation 1. The Bank adopts the Standardized Approach for market risk capital charge. 2. In terms of risk management, SUMMIT Market Risk Information System provides limit management, profit and loss assessment, sensitivity factor analysis, stress test, and risk value calculation. The Bank is gradually managing market risk through information generated from SUMMIT. In the future, it shall decide whether to adopt Internal Models Approach for capital charge based on business requirements and complexity of the financial products. Liquidity Risk Management System Year 2017 Item Content A. Liquidity Risk Management Strategies and Procedures 1. Strategies: „ Monitor the Bank ’ s overall liquidity risk limit according to the risk management objectives approved by the Board of Directors. „ According to the regulations of the Bank ’s “Liquidity Risk Management Guidelines” , “Operational Directions for Contingency Funding Plan”, and “ Operational Directions for Liquidity Stress Tests ”, implement liquidity ris k management to en sure the Bank’ s payment ability. „ Conduct stress test regularly to ensure that when the Bank ’ s internal operation or external financial environment suffers severe impact, under any circumstance whether at present or in the future, the Bank ’ s liquid funds are sufficient to meet asset increase requirements or fulfill due obligations, so that the Bank can attain sustainable operation. 2. Process: „ According to the Bank ’s “Liquidity Risk Management Guidelines”, Treasury Department shall control intra-day liquidity positions and risks of NTD and foreign currencies held by domestic units on a daily basis, set aside deposit reserves and maintain liquidity reserves as per the regulations of the Central Bank of the Republic of China (Taiwan), and adjust the liquidity gap based on changes in daily cash flows and market status to ensure the proper liquidity. Overseas branches shall abide by the rules of the home country and the competent authority and hold proper liquid assets to maintain the sufficient liquidity „ Risk Management Department monitors the liquidity risk management indicators of major currencies, inspects regulatory compliance regularly, and reports to the Fund Management Committee, Risk Management Committee and the Board of Directors.