Barclays 2011 Annual Report Download - page 140

Risk management
Funding risk – Capital continued
– Leverage
The CRD4 proposals introduce a non-risk based leverage ratio that is calibrated to act as a supplementary measure to the risk based capital
requirements. The calculation determines a ratio based off the relationship between Tier 1 capital and on and off-balance sheet exposures.The
Committee will test a minimum Tier 1 leverage ratio of 33x during the parallel run period from 1 January 2013 to 1 January 2017 prior to it potentially
becoming a directly applicable prudential requirement from 2018.
Based on our interpretation of the current proposals, the Group’s CRD4 Leverage Ratio as at 31 December 2011 would be within the proposed limits.
– Harmonisation of national regulations
In addition to the introduction of new rules, CRD4 attempts to harmonise national regulation across the European Union via the elimination of national
discretion and implementation of a common rule book. If applied as drafted, one of the most significant impacts for UK banks with retail portfolios will
be the proposed change in the definition of default for portfolios using advanced internal ratings based models, which could result in an increase in
minimum credit risk capital requirements.
Independent Commission on Banking (ICB)
The ICB published its final recommendations to the Cabinet Committee on Banking Reform on 12 September 2011 calling for the ‘ring-fencing’
of primary retail banking operations and an increase in the minimum capital requirements and the use of bail-in instruments to enhance the loss
absorbing capacity of financial institutions. Following the UK Government’s considerations of these recommendations, the HMT published its response
to the ICB’s recommendations re-enforcing the principles of legal segregation of retail banking activities from other activities and higher Core Tier 1
and total capital requirements in the ring-fenced entity. Its intention is to complete primary and secondary legislation before the end of the current
Parliamentary term in May 2015 and to implement the ring-fencing measures as soon as practicable thereafter and the loss absorbency measures
by 2019. Barclays maintains close engagement with the FSA and HMT to support the UK Government and the Group in understanding the practical
implications and potential impacts of these proposals.
EU Crisis Management proposals and the FSA’s consultation on Recovery and Resolution Plans
The EU Commission issued a consultation on 1 January 2011 on recovery and resolution management tools that should be implemented by institutions
and regulators. This proposal will inform EU legislation and contribute to the requirements for additional capital to be retained by global systemically
important financial institutions (G-SIFIs).
The FSA has issued its proposal calling on institutions to identify a range of actions that can be implemented by firms and the regulators during stress
conditions more severe than originally forecasts (Recovery Plans) and at the point of non-viability (Resolution plans). Barclays has participated in the
FSA’s Pilot project of developing a Recovery and Resolution Plan since 2010. Board approved Plans have been submitted and discussed with the FSA
through the development process and Barclays is progressing well with its compliance by June 2012. Based on the FSA’s analysis of Recovery and
Resolution Plans, banks could be required to retain additional capital buffers.
Credit Ratings Agency Regulation
The provision of the Credit Ratings Agency Regulation comes into force on 1 May 2012. These provisions restrict the use of ratings for regulatory
purposes to those either issued in, or endorsed by the EU. The change potentially impacts the calculation of regulatory capital requirements, although
the impact of the change is not yet known as the European Securities and Markets Authority (ESMA) has not yet determined which non-European
countries are eligible to be endorsed.
Further details on these and other regulations that may impact the wider operations of the Group are set out in the ‘Supervision and regulation’ section
on page 154 to 158.
138 Barclays PLC Annual Report 2011 www.barclays.com/annualreport