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General Concept of Risk Management

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Basic Approach

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.

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 MHFG and our core group companies, 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 and MHSC by risk category, and is further allocated within their respective business units based on established frameworks.

Allocation of Risk Capital
Image: Allocation of Risk Capital
  • *Including risk exposures of the subsidiaries of the core group companies.

Stress Testing

We conduct stress testing based on several scenarios, such as economic recession and turmoil in financial markets. We have built a framework in which we use the results of stress testing for making business decisions such as, among other things, the identification of issues for purposes of the managing our business–planning. Our stress testing scenarios are formulated through discussions regarding historical stress events, underlying macroeconomic events and economic outlook, taking into account the probability of the event and its impact on us. We estimate the impact on us by setting parameters such as economic output, stock market and interest rate levels for each scenario.

(As of Jun 24, 2014)

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