General Concept of Risk Management
We classify our risk exposures according to the various kinds of risk, including credit risk, market risk, liquidity risk and operational risk, and manage each type of risk according to its characteristics. In addition to managing each type of risk individually, we have established a risk management structure to identify and evaluate overall risk and, where necessary, to devise appropriate responses to keep risk within limits that are managerially acceptable in both qualitative and quantitative terms. In line with the basic policies relating to overall risk management laid down by MHFG, companies within the Group identify risk broadly and take a proactive and sophisticated approach to risk management, including methodologies for operations that involve exposures to multiple categories of risk such as settlement and trust businesses.
|Credit risk||The Group's exposure to the risk of losses that may be incurred due to a decline in, or total loss of, the value of assets (including off–balance–sheet instruments), as a result of deterioration in obligors' financial position.|
|Market risk||The risk of losses incurred by the Group due to fluctuations in interest rates, stock prices and foreign exchange rates. Our definition includes the risk of losses incurred when it becomes impossible to execute transactions in the market because of market confusion or losses arising from transactions at prices that are significantly less favorable than usual.|
|Liquidity risk||The risk of losses arising from funding difficulties due to a deterioration in our financial position that makes it difficult for us to raise necessary funds or that forces us to raise funds at significantly higher interest rates than usual.|
|Operational risk||The risk of losses that the Group may incur resulting from inadequate or failed internal processes, people and systems, or from external events. Operational risk consists of several components such as information technology risk, operations risk, etc.|
Risk Capital Allocation
We endeavor to obtain a clear grasp of the Group's overall risk exposure and have implemented measures to keep such risks within the Group's financial base in accordance with the risk capital allocation framework.
More specifically, we allocate risk capital to our core group companies, including their respective subsidiaries, to control risk within the limits set for each company. We also control risk within managerially acceptable limits by working to ensure that the overall risk we hold on a consolidated basis does not exceed shareholders'equity and other measures of financial strength. To ensure the ongoing financial health of the Group, we regularly monitor the manner in which risk capital is being used in order to obtain a proper grasp of the risk profile within this framework. Reports are also submitted to the Board of Directors and other committees of each company. Risk capital is allocated to MHBK, MHTB, MHSC and Mizuho Americas by risk category, and is further allocated within their respective business units based on established frameworks.
- Allocation of Risk Capital
- *Including risk exposures of the subsidiaries of the core group companies.
As part of our risk capital allocation management, we create multiple risk scenarios common to the Group, based on which we and our core group companies calculate potential losses and risk amount arising from assumed stress events across all risk types. The calculated losses and risk amount are used for assessing internal capital adequacy and verifying whether they balance with the Group's capital.
The risk scenarios for stress testing are formulated by taking into account the current economic conditions and the economic outlook and by assuming historical stress events, etc. from a risk management perspective to measure the impacts of stress events by scenario.
- Assessment of Balance between Risk under Stressed Condition and Capital
(As of Jul 1, 2016)