Barclays 2007 Annual Report Download - page 264

Notes to the accounts
For the year ended 31st December 2007
262 Barclays PLC Annual Report 2007
50 Capital Management
Barclays operates a centralised capital management model, considering both regulatory and economic capital. The capital management strategy is to
continue to maximise shareholder value through optimising both the level and mix of capital resources. Decisions on the allocation of capital resources
are conducted as part of the strategic planning review.
The Group’s capital management objectives are to:
– Support the Group’s AA credit rating.
– Maintain sufficient capital resources to support the Group’s risk appetite and economic capital requirements.
– Maintain sufficient capital resources to meet the FSA’s minimum regulatory capital requirements and the US Federal Reserve Bank’s requirements
that a financial holding company be well capitalised.
– Ensure locally regulated subsidiaries can meet their minimum capital requirements.
External Regulatory Capital Requirements
The Group is subject to minimum capital requirements imposed by the Financial Services Authority (FSA), following guidelines developed by the Basel
Committee on Banking Supervision (the Basel Committee) and implemented in the UK via European Union Directives.
Minimum requirements under FSA’s Basel rules are expressed as a ratio of capital resources to risk weighted assets (Risk Asset Ratio). Risk weighted
assets are a function of risk weights applied to the Group’s assets using calculations developed by the Basel Committee on Banking Supervision.
Under Basel II, effective from 1st January 2008, the Group has been granted approval by the FSA to adopt the advanced approaches to credit and
operational risk management. Pillar 1 risk weighted assets will be generated using the Group’s risk models. Pillar 1 minimum capital requirements under
Basel II are Pillar 1 risk weighted assets multiplied by 8%, the internationally agreed minimum ratio.
Under Pillar 2 of Basel II, the Group is subject to an overall regulatory capital requirement based on individual capital guidance (‘ICG’) received from
the FSA. The ICG imposes additional capital requirements in excess of Pillar 1 minimum capital requirements. Barclays received its ICG from the FSA
in December 2007.
Outside the UK, the Group has operations (and main regulators) located in continental Europe, in particular France, Germany, Spain, Portugal and Italy
(local central banks and other regulatory authorities); Asia Pacific (various regulatory authorities including the Hong Kong Monetary Authority, the Japanese
FSA and the Monetary Authority of Singapore); Africa, where the Group’s operations are headquartered in Johannesburg, South Africa (The South African
Reserve Bank and the Financial Services Board (FSB)) and the United States of America (the Board of Governors of the Federal Reserve System (FRB) and
the Securities and Exchange Commission).
The Group manages its capital resources to ensure that those Group entities that are subject to local capital adequacy regulation in individual countries
meet their minimum capital requirements. Local management manages compliance with subsidiary entity minimum regulatory capital requirements
with reporting to local Asset and Liability Committees and to Treasury Committee, as required.
Regulatory Capital Ratios
The table below provides details under Basel I of the Group’s capital ratios and risk weighted assets at 31st December 2007 and 2006.
2007 2006
%%
Capital Ratios
Tier 1 ratio 7.8 7.7
Risk asset ratio 12.1 11.7
£m £m
Total risk weighted assets 353,476 297,833
The table below provides details of the regulatory capital resources managed by the Group.
2007 2006
£m £m
Total qualifying Tier 1 capital 27,408 23,005
Total qualifying Tier 2 capital 17,123 14,036
Total deductions (1,889) (2,330)
Total net capital resources 42,642 34,711
Insurance businesses
Insurance businesses are subject to separate regulation regarding Capital management and have constraints on the transfer of capital. Capital resource
requirements are assessed at company level in accordance with local laws and regulations. However, the requirement is that each life fund should be able
to meet its own liabilities. In the event that this should not be the case, shareholders’ equity would be required to meet its liabilities to the extent that they
could not otherwise be met.
The capital resource requirement of the insurance businesses at 31st December 2007 was £216m (31st December 2006: £225m).