Barclays 2014 Annual Report Download - page 177

barclays.com/annualreport Barclays PLC Annual Report 2014 I 175
Market risk is the risk of a reduction to earnings or
capital due to volatility of trading book positions or an
inability to hedge the banking book balance sheet.
All disclosures in this section (pages 175 to 183) are unaudited unless otherwise stated
Overview of market risk
This section contains key statistics describing the market risk profile of
the bank. It includes both regulatory and management measures. This
includes risk weighted assets by major business line, as well as Value at
Risk (VaR) measures. A distinction is made between regulatory and
management measures within the section. The market risk
management section on pages 136 to 146 in Barclays PLC Pillar 3
report provides full descriptions of these metrics:
Q Page 73 provides a view of market risk in the context of the Group’s
balance sheet;
Q Pages 139 to 144 cover the management of traded market risk.
Management measures are shown from page 139 and regulatory
equivalent measures are shown from page 141; and
Q Non-traded market risk, arising from our banking books, is reviewed
from page 78.
Measures of market risk in the Group and accounting
measures
The relationship between the Group’s market risk measures and
balance sheet is presented on page 176. Traded market risk measures
such as VaR and balance sheet exposure measures have fundamental
differences:
Q Balance sheet measures show accruals-based balances or marked to
market values as at the reporting date;
Q VaR measures also take account of current mark-to-market values,
however hedging effects between positions are also considered; and
Q In addition, the measures are expressed in terms of changes in value
or volatilities as opposed to static values.
For these reasons, it is not possible to present direct reconciliations of
traded market risk and accounting measures. To help the reader
understand the linkages between market risk measures at a high level,
comparisons of exposures and balance sheet measures are provided:
Q ‘Balance sheet view of trading and banking books’, on page 176,
highlights the main categories of assets that are subject to market
risk; and
Q ‘Principal asset and liability balances subject to market risk in the
Investment Bank, Non-Core and Head Office’, on page 178, provides
another view; balance sheet values are shown for market risk-taking
business lines.
Summary of performance in the period
The Group has seen a decrease in market risk from lower volatility in
certain financial markets, in addition to risk reduction in Non-Core
businesses:
Q Measures of traded market risk, such as Value at Risk, decreased in
the year due to lower volatility and risk reduction in BNC businesses;
Q This translated into lower volatility in daily trading revenue as
reflected in the trading revenue histogram on page 177, although
with lower average daily revenue from 2013 levels;
Q Market risk RWAs fell from 2013 levels as a result of lower volatility
and reduction of BNC assets;
Q Annual Earnings at Risk (AEaR) to interest rate shocks, a key
measure of interest rate risk in the banking book (IRRBB), increased
in 2014, due to increased current account balances and an
improvement in the completeness of the model; and
Q Other market risks, such as pension risk and insurance, are disclosed
from page 182 onwards.
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