Bachelor's thesis (Turku University of Applied Sciences) Degree Program in Business Management

party default (Risk-management report 2011, p. 26).
Additionally, several calculation models are being used in order to evaluate the 
level of exposure to counter-party risk in the course of maturity period: fair value 

---

99 
TURKU UNIVERSITY OF APPLIED SCIENCES THESIS | Artem Vorobyev 
adjustments (prices include the cost of hedging from credit risk), potential future 
exposure limit calculation models and RWA
11
capital allocations. 
Apart from counter-party risk, it is also important to mitigate potential negative 
effects of the market risk. The analysts of Nordea Group specifically point out 
the situations when market risk, due to unexpected fluctuations in various 
economic variables, is most probable: while practically all interest-bearing 
securities could be allocated to this group, market risk also influences foreign-
exchange investment operations, changes in share prices and such derivatives, 
like options contracts (Risk-management report 2011, p. 6).
While every year the amount of RWA is specifically adjusted for each of the 
most probable risks depending on the amendments of active regulation and 
directives of banking services, such models as VaR, IRM
12
and CRM
13
not only 
help to evaluate the probability of encountering a market risk in various regions, 
but also determine exact steps of risk management strategies for different 
countries: whether for measuring the risk of interest-rate fluctuations of certain 
bonds issued in Denmark or any other types of equity and securities operations 
(Risk-management report 2011, p. 45).
Interestingly enough, while risk management strategies that accompany market 
risk are mostly concerned with direct calculations through some of the 
discussed economic models, limiting the negative effects of liquidity risk is 
mostly concerned with diversification of investment funding sources: since 
alternating short-term and long-term investments is the key here, adhering to 
barbell strategy could be beneficial.
Apart from everything mentioned above, stress testing risk management 
strategies are introduced: a theoretical recreation of possible solvency 
11
Necessary capital buffers are allocated to support every financial asset on the basis of its potential risk 
exposure (
investopedia.com
). 
12
Techniques for evaluation of counter-party risks connected with default possibilities of corporate 
securities and credit derivative issuers (Nordea’s Annual Risk Management Report, 2011, p. 44). 
13
Is a way to measure all possible variations of credit risk exposures that are subject to a certain 
investment portfolio (Nordea’s Annual Risk Management Report, 2011, p. 44). 

---

100 
TURKU UNIVERSITY OF APPLIED SCIENCES THESIS | Artem Vorobyev 
threatening situations allows the company to measure probable damages to 
bank’s operations (Risk-management report 2011, p. 56).
Another important question is 
– how does the bank adjust its operations in order 
to comply with the upcoming regulation of BASEL III and CRD IV? As is already 
known, it introduces several amendments to the existing legislation that 
prescribe to construct a greater liquidity buffer in order to cover a 30-day period.
This is where the new methods of calculation, presented by the GLS, come into 
play. For instance, LCR is already used in order to estimate the necessary 
amount of liquidity buffer. In compliance with NsFR, the latter comprises “highly 
liquid central bank eligible securities with characteristics similar to Basel III/CRD 
IV-
liquid assets” (Annual financial report 2012, p. 9). 
According to the bank’s analysts, “Nordea will be able to meet Basel III capital 
and LCR requirements in due time” (Risk management report 2011, p. 3). 
8.5 Osuuspankki (Pohjola Group) 
The Pohjola Group is a union comprising over 200 banks, financial 
intermediaries and business companies that not only specialise in providing 
credit and lending services, but non-life insurance and asset management 
activities as well (Annual financial report, 2011, p. 1). 
While carefully observing the operational environment for the banking sector in 
2011-2012, analysts of Pohjola Group mention that, even though Finnish 
economy continues to grow in the long run, the negative effects of European 
economic crisis could still pressure the banking industry in Finland (Board of 
directors and Financial statements report, p. 2-3).