Barclays 2008 Annual Report Download - page 123

1
Business review
number of days when a loss (as defined by the FSA in BIPRU 7.10) exceeds
the corresponding DVaR estimate, measured at the 99% confidence level.
The FSA categorises a DVaR model as green, amber or red. A green
model is consistent with a good working DVaR model and is achieved for
models that have four or less back-testing exceptions in a 12-month
period. For Barclays Capital’s trading book, green model status was
maintained for 2008 and 2007.
To further improve the control framework, formal daily monitoring of
Expected Shortfall (ES) was started. This metric is the average of all the
hypothetical losses beyond DVaR.
Stress testing provides an indication of the potential size of losses that
could arise in extreme conditions. It helps to identify risk concentrations
across business lines and assist senior management in capital planning
decisions. A variety of different types of stress tests are performed in order to
fulfil the objectives of stress testing. The global asset class stress tests have
been designed to cover major asset classes including interest rate, credit
spread, commodity, equity, foreign exchange rates and emerging markets.
Stress results are produced at least fortnightly. If a potential stress loss
exceeds the corresponding trigger limit, the positions captured by the stress
test are reviewed and discussed by Barclays Capital market risk management
and the respective Barclays Capital business heads. The minutes of the
discussion, including the merits of the position and the appropriate course of
action, are then sent to the Market Risk Director for review.
Scenario tests are hypothetical events which could lead to extreme yet
plausible stress type moves under which profitability is seriously
challenged. The scenarios are devised by senior risk managers and
economists and are reviewed quarterly. Examples include ‘Global
pandemic’, ‘Problems with GBP sovereign issuances’ and ‘Liquidity crisis’.
The scenarios are calculated at least fortnightly and the results are
included in the Traded Positions Risk Review meeting information pack.
Analysis of traded market risk exposures
The tables and graph show the time series for total DVaR with
commentary. Further analysis is given in Note 48.
Analysis of trading revenue
The histograms below show the distribution of daily trading revenue for
Barclays Capital in 2008 and 2007. Revenue includes net trading income,
net interest income, net fees and commissions relating to primary trading,
and the effects of gains or losses on own credit. The average daily revenue
in 2008 was £19.5m (2007: £26.2m) and there were 203 positive revenue
days out of 254 (2007: 224 out of 253). The number of negative revenue
days increased in 2008, largely a result of volatile markets especially in the
fourth quarter. The number of positive revenue days greater than £45m
also increased but these were spread across the year.
Barclays PLC Annual Report 2008 121
Total DVaR 2007 and 2008 £m
20072008
0
40
80
120
160
DVaR 98%
DVaR 95%
a
b
c
d
Notes
aTotal DVaR remains broadly at the same level as recorded in Dec 07.
bTotal DVaR reduces due to reduction in interest rate positions.
cBarclays acquires Lehman Brothers North American businesses during a period of
extreme market volatility. The Lehman positions are subsequently reduced.
dDVaR increases significantly due to extreme market volatility following the failure of
several financial intuitions and a material deterioration in the global economic outlook.
Barclays changes to 95% DVaR to improve management, transparency and control of
the market risk profile.
Barclays Capital’s trading revenue 2007 £m
6
6
17
41
70
78
19
10
1
5
Number of days
<–30 –15
to
<0
0 to
<15
15 to
<30
30 to
<45
45 to
<60
60 to
<75
75 to
<90
90+
–30
to
<–15
Barclays Capital’s trading revenue 2008 £m
21
7
22
31
45
46
32
19
18
13
Number of days
<–30 –15
to
<0
0 to
<15
15 to
<30
30 to
<45
45 to
<60
60 to
<75
75 to
<90
90+
–30
to
<–15