Barclays 2011 Annual Report Download - page 126

Risk management
Market risk continued
0
20
40
60
80
100
2010 2011
a
b
c
Total DVaR 2010 and 2011 £m
<–20
–20 to < 0
0 to <20
20 to <40
40 to <60
60 to <80
80 to <100
100+
20
31
40
52
53
24
11
17
2
13
39
75
58
28
17
21
2011
2010
Barclays Capital daily trading revenue 2011 and 2010 £m
Number of days
Analysis of trading revenue
The histogram above shows the distribution of daily trading revenue for Barclays Capital in 2011 and 2010. Trading revenue excludes income from
Private Equity and Principal Investments.
The average daily revenue in 2011 was £41m, 21% lower than the 2010 average. In 2011, there were more negative days than in 2010, with the majority
of these days occurring during the highly volatile second half of 2011.
Non-traded interest rate risk (audited)
Non-traded interest rate risk arises from the provision of retail and wholesale (non-traded) banking products and services, when the interest rate
repricing date for loans (assets) is different to the repricing date for deposits (liabilities). This includes current accounts and equity balances which do
not have a defined maturity date and an interest rate that does not change in line with Base rate changes. The risk resides mainly in Retail and Business
Banking, Barclays Corporate, and Group Treasury. Barclays objective is to minimise non-traded interest rate risk and this is achieved by transferring
interest rate risk from the business to a local or Group Treasury, which in turn hedges the net exposure via Barclays Capital with the external market.
Limits exist to ensure no material risk is retained within any business or product area. Trading activity is not permitted outside Barclays Capital.
Risk measurement
The risk in each business is measured and controlled using both an income metric (Annual Earnings at Risk) and value metrics (Economic Value of
Equity, Economic Capital, DVaR, risk factor stress testing, scenario stress testing).
Annual Earnings at Risk (AEaR) measures the sensitivity of net interest income over the next 12 month period. It is calculated as the difference between
the estimated income using the current yield curve and the lowest estimated income following a 100 basis point increase or decrease in interest rates,
subject to a minimum interest rate of 0%.
The main model assumptions are:
– The balance sheet is kept at the current level i.e. no growth is assumed; and
– Balances are adjusted for an assumed behavioural profile. This includes the treatment of fixed rate loans including mortgages.
Economic Value of Equity (EVE) calculates the change in the present value of the banking book for a 100 basis point upward and downward rate shock.
This calculation is equivalent to that of AEaR except EVE is a present value sensitivity while AEaR is an income sensitivity.
Economic Capital (EC) consistent models are used to measure: recruitment risk, the risk from customers not taking up their fixed rate loan offer;
and prepayment risk, the risk of a customer deciding not to carry on with their fixed rate loan. Behavioural profiles are also used when modelling the
balance sheet.
A combination of DVaR, stress limits, net open position and specific currency or tenor limits are in place for all local Treasury activities.
Notes
a DVaR continues to fall from 2010 levels reaching a low of £33m for the year.
b A high of £88m was reached in August as the euro sovereign crisis continued to deteriorate, impacting market liquidity.
c Towards the end of 2011, total DVaR remained elevated in part due to decreased cross asset diversification, but remains well within the defined risk appetite.
124 Barclays PLC Annual Report 2011 www.barclays.com/annualreport