Barclays 2009 Annual Report Download - page 286

284 Barclays PLC Annual Report 2009 www.barclays.com/annualreport09
Notes to the accounts
For the year ended 31st December 2009
continued
48 Market risk continued
Analysis of traded market risk exposures
Barclays Capital's market risk exposure, as measured by average total DVaR, increased by 45% to £77m (2008: £53m). The rise was mainly due to volatility
considerations, increased interest rate and credit spread exposure, and the Lehman Brothers North America businesses acquisition. Volatility impacted
average DVaR because 2008’s extreme volatility impacted DVaR throughout 2009 but only impacted 2008 DVaR in the last four months of 2008.
Expected shortfall and 3W averaged £121m and £209m respectively representing increases of £51m (73%) and £93m (80%) compared to 2008.
The daily average, maximum and minimum values of DVaR, Expected Shortfall and 3W were calculated as below.
12 months to 12 months to
31st December 2009 31st December 2008
Average HighaLowaAverage HighaLowa
£m £m £m £m £m £m
DVaR (95%)
Interest rate risk 44 83 23 29 48 15
Credit spread risk 58 102 35 31 72 15
Commodity risk 14 20 11 18 25 13
Equity risk 13 27 5 921 5
Foreign exchange risk 815 3 613 2
Diversification effecta(60) n/a n/a (40) n/a n/a
Total DVaR 77 119 50 53 95 36
Expected shortfall 121 188 88 70 146 41
3W 209 301 148 116 282 61
Non-traded interest rate risk
Non-traded interest rate risk arises from the provision of retail and wholesale (non-traded) banking products and services.
Barclays objective is to minimise non-traded risk. This is achieved by transferring risk from the business to a local treasury or Group Treasury, who in turn hedge
the net exposure with the external market. Limits exist to ensure no material risk is retained within any business or product area. The majority of non-trading
interest rate market exposures are within Global Retail and Commercial Banking, and Group Treasury. Trading activity is not permitted outside Barclays Capital.
Risk measurement and control
The risk in each business is measured and controlled using both an income metric (Annual Earnings at Risk) and a present value metric (Daily Value at Risk
or stress testing). In addition scenario stress analysis is carried out by the business and reviewed by senior management and business-level asset and
liability committees, when required.
Annual Earnings at Risk (AEaR) measures the sensitivity of net interest income (NII) over the next 12 months. It is calculated as the difference between the
estimated income using the current yield curve and the lowest estimated income following a 100 basis points increase or decrease in interest rates, subject
to a minimum interest rate of 0%. Balances are adjusted for an assumed behavioural profile. This includes the treatment of non-maturity deposits.
Daily Value at Risk and stress testing is calculated using a Barclays Capital consistent approach. Both these metrics are calculated by each respective
business area with oversight provided by Group Market Risk.
Risk exposures are monitored by respective business risk managers with oversight provided by Group Market Risk. The main business limits are approved
by Market Risk Committee. Book limits such as foreign exchange and interest rate sensitivity limits are also in place where appropriate.
To further improve the market risk control framework, Group Market Risk initiated an ongoing programme of conformance visits to non-traded Treasury
operations. These visits review both the current market risk profile and potential market risk developments, as well as verifying conformance with Barclays
policies and standards as detailed in the market risk control framework.
Note
aThe high (and low) DVaR figures reported for each category did not necessarily occur on the
same day as the high (and low) DVaR reported as a whole. Consequently, a diversification
effect number for the high (and low) DVaR figures would not be meaningful and it is
therefore omitted from the above table.