Barclays 2011 Annual Report Download - page 11

Understanding Business Conditions
It is important that we understand the conditions in which we
operate in order to run the company effectively. In this section we
aim to highlight some of the major factors affecting the banking
industry to help the reader understand the context of the current
market and environment.
Below we have set out the key market and environment issues
faced by Barclays in 2011.
Regulatory change
There has been continuing regulatory change in the wake of the financial
crisis. Barclays maintains a proactive stance to regulation, seeking to be
involved in the policy discussion in a constructive manner, and taking a
serious approach to ensuring compliance with the resulting legislation and
regulation. Outlined below are the key regulatory uncertainties we face.
Basel and the Capital Requirements Directive (CRD)
The issue. The Basel Committee published a paper on ‘Strengthening
resilience of the banking sector’ in 2009. The report covered wide ranging
proposals including more stringent capital and Risk Weighted Asset (RWA)
treatments than the current regulatory regime.
What we have done about it. Barclays maintains a strong dialogue with
international regulators including the FSA and the Basel Committee. We
are focused on conservative capital management and management of our
RWAs with significant reductions of Credit Market Exposures improving
the capital efficiency of the Group, enabling us to maintain a robust Core
Tier 1 ratio of 11.0% after the impact of CRD3. The strength of our capital
ratios, our ability to generate capital organically and our actions to optimise
RWAs will enable us to meet our targeted capital ratios under CRD4.
Independent Commission on Banking (ICB)
The issue. One of the key proposals in the final ICB report, which has been
endorsed by the Government, is for UK retail and SME operations to be ring-
fenced entities. The ICB has also recommended a potential loss-absorbing
capacity of 17%. These factors are likely to increase operational costs and
could have an adverse impact on the cost of funding for UK banks.
What we have done about it. Barclays strategy and financial targets
remain valid in the context of the ICB recommendations. The ICB has
estimated the cost to the industry at £4-7bn per annum, however we are
unable to provide more accurate estimates of the cost to Barclays until
detailed specification is provided and the market reflects the cost of
funding. We welcome both the implementation timeline, allowing
opportunity to get the detail right, and the ring-fenced entity design
flexibility. In addition, we continue to develop internal Recovery and
Resolution Plans to ensure Barclays remains a going concern and to assist
regulators in the unlikely event that the bank is wound down.
Dodd-Frank Wall Street Reform and Consumer Protection Act (DFA)
The issue. The DFA was enacted by the US to implement financial
regulatory reform as a response to the recent economic crisis. Certain
provisions of the DFA may have an effect on the Group, including:
– the Fed imposing additional risk management requirements;
– the Volcker Rule, which aims to restrict proprietary trading and
fund-related activities; and
– derivatives trading requirements, where certain swaps-related activities
may be limited in our US entities.
What we have done about it. Barclays continues to engage with the
US authorities as they consult on proposals for rules and proceed to rule-
making. We have taken a centralised approach to monitoring this process
and to ensuring compliance with the rules that are developed as a result. For more detailed information, please see Supervision and
Regulation, page 154
Regulatory timeline
2011 Basel 2.5 (CRD3) implemented on
31 December
H1 2012 UK Government to publish White
Paper on banking reform following
ICB recommendations in 2011
Q1 2013 Implementation of RWA calculations
under Basel 3 (CRD4)
H1 2013 Financial Services Act to be implemented
which will change the structure of the
UK regulatory bodies
2013 – 2015 Expected enactment of UK Government
White Paper on banking reform
2014 – 2018 Phasing in of capital deductions under
Basel 3 (CRD4)
2019 Implementation of UK Government
White Paper on banking reform
2022 Full compliance with US Dodd-Frank Act
Barclays PLC Annual Report 2011 www.barclays.com/annualreport 09
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