General Concept of Risk Management
Risk Capital Allocation
We endeavor to obtain a clear grasp of the group's overall risk exposure and implement measures to make sure this exposure is within limits that are acceptable and are in accordance with the risk capital allocation framework.
More specifically, we allocate risk capital to our core group companies (including their subsidiaries) to control risk within the limits set for each company. We also control risk within acceptable limits by working to ensure that the overall risk on a consolidated basis does not exceed our financial strength. To ensure the ongoing financial soundness of Mizuho Financial Group and our core group companies we regularly monitor the manner in which risk capital is being used in order to obtain an accurate 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 Mizuho Bank, Mizuho Trust & Banking, Mizuho Securities, and Mizuho Americas by risk category, and is further allocated within their respective business units.
Framework for allocating risk capital
* Includes the risk exposure of group companies that are managed by core group companies
At Mizuho Financial Group, we specify risks that are recognized to have a major potential impact on the group as "top risks", and have introduced top risk management methods.
We gather wide–ranging information on potential risk events which may harm our corporate value in light of our particular vulnerabilities, the external business environment, and other factors. With this information, we assess risk contagion channels, probabilities, impacts, and similar to identify critical potential risk events. We then designate top risks with consideration to the difficulty of risk control and based on discussions at the executive management level.
Through this approach, we endeavor to deepen communication regarding risks, seek to create common perspectives regarding risks, and work to secure consistency in awareness of various types of risks.
For the top risks that are identified, the status of controls is confirmed, and, when deemed necessary consideration is given to additional risk controls. In addition, the Risk Committee, Board of Directors, and other bodies receive reports on these top risks, allowing for multifaceted confirmation from external experts and outside directors regarding the appropriateness of the designation of top risks, status of controls, and other considerations.
As of March 2021, the items on page 86 have been designated as top risks.
|Top risks||Primary risk control measures|
|Risk event||Risk scenario|
|Prolonged impact of COVID–19||
|Intensification of US–China friction||
|Inflation concerns and interest rate hikes in the US||
|Rapid advancement of social change occurring due to climate change||
|IT system failure/Cyber attacks||
|Money laundering/Financing of terrorism||
|Inappropriate behavior or nonfeasance by employees/executive officers||
|Rapid development of digital society||
* A violation of laws, regulations, or rules; or an action or misfeasance in conflict with the social responsibility or public duty expected of the Mizuho group.
Note: The risks described here are only some of the possible risks we are aware of. For more comprehensive information on the group's risks, please refer to our
Form 20–F and other related documents.
We assess the suitability of our risk appetite and the validity of our business plans through stress testing, calculating and assessing the financial effect on our capital adequacy ratio and on our business.
We carry out stress testing based on scenarios formulated taking into account current economic conditions and future outlooks, vulnerabilities in the Mizuho group's business and finance structures, and other factors. We can confirm whether our capital adequacy ratio, performance, and other indicators are sufficient in the case that stress events actually materialize. If such indicators fall below the necessary level, we reconsider and revise our risk appetite and business plans. In addition, we confirm the balance between owned capital and risk capital, including interest rate risk in the banking book, at the post–stress stage to assess the adequacy of the capital level.
Furthermore, to structure robust risk management systems, stress testing is also used to manage risk in various risk categories, such as market risk.
This process also serves as a foundation for understanding the characteristics of our business portfolio and enables planning in advance regarding the course of action which should be taken if a stress event occurs, and is conducted regularly to enhance our risk management capabilities.
Mizuho's stress testing
1. Preparing scenarios
- Current economic conditions and future outlook
- Vulnerabilities of the group's business and financial structure
Preparation of scenarios common across the group
2. Calculation of risk impact
- Calculation of the impact on the group when the risk scenario materializes
- Main items to calculate: Capital adequacy ratio, losses, VAR, etc.
3. Analysis and use of results
- Assessment of the suitability of our risk appetite and our business plans
- Assessment of capital adequacy