Barclays 2010 Annual Report Download - page 131

– the increase from 24x at December 2009 to 27x at January 2010
was also affected by increases in settlement balances;
– a step up in August from 27x to 29x arose from an increase in gross
derivatives balances; and
– the decrease in December from 27x to 24x was affected by a decrease
in gross derivatives and settlement balances in addition to those
movements noted above.
Group Treasury agrees adjusted tangible asset targets at a segment level
to manage the Barclays balance sheet and leverage ratio. Barclays Capital’s
adjusted tangible assets are managed and reviewed monthly by the
Barclays Capital Balance Sheet Steering Committee which includes
members of Treasury, Finance and the businesses. The Steering Committee
agrees limits with each business across Barclays Capital and monitors
balance sheet usage against those limits. Businesses were required to
manage the balance sheet to defined limits and were not permitted to
exceed them without prior approval by nominated Steering Committee
members. Barclays continues to operate within limits and targets for
balance sheet usage as part of its balance sheet management activities.
The Basel Committee of Banking Supervisors (BCBS) issued final
guidelines for ‘Basel III: a global regulatory framework for more resilient
banks and banking systems’ in December 2010. The guidelines include
a proposed leverage metric, to be implemented by national supervisors
in parallel run from 1st January 2013 (migrating to a Pillar 1 measure by
2018). Based on our interpretation of the current BCBS proposals the
Group’s Basel III leverage ratio as at 31st December 2010 would be within
the proposed limit of 33x.
Economic capital demand
Economic capital is an internal measure of the risk profile of the bank
expressed as the estimated stress loss at a 99.98% confidence level. The
total amount of equity and preference capital held by the Group takes into
account Economic Capital Demand and is set at an appropriate level to
ensure that the Group maintains it credit rating based upon its risk profile.
Barclays assesses capital requirements by measuring the Group’s risk
profile using both internally and externally developed models. The Group
assigns economic capital primarily within the following risk categories:
credit risk, market risk, operational risk, private equity and pension risk.
The Group regularly reviews its economic capital methodology and
benchmarks outputs to external reference points. The framework uses
default probabilities during average credit conditions, rather than those
prevailing at the balance sheet date, thus seeking to remove cyclicality from
the economic capital calculation. The economic capital framework takes
into consideration time horizon, correlation of risks and risk concentrations.
Economic capital is allocated on a consistent basis across all of Barclays
businesses and risk activities. A single cost of equity is applied to calculate
the cost of risk.
The total average economic capital required by the Group is compared
with the supply of economic capital to evaluate economic capital
utilisation. The supply of economic capital is based on the available
shareholders’ equity adjusted for certain items (e.g. retirement benefit
liability, cash flow hedging reserve) and including preference shares.
Economic capital forms the basis of the Group’s submission for the Basel II
Internal Capital Adequacy Assessment Process (ICAAP).
Average economic capital allocation by businessabc
4,000
3,900
3,350
3,200
1,450
1,800
700
800
10,750
10,950
4,750
4,850
550
550
950 3,600
1,200
1,200
100
150
2010
2009
UK Retail Banking
Barclaycard
Western Europe Retail
Banking
Barclays Africa
Barclays Capital
Barclays Corporate
Barclays Wealth
Investment Management
Absa
Head Office Function
and Other Operations d
£m
Average economic capital allocation by risk typeabc
10,000
11,350
7,750
7,750
2,000
2,050
3,700
2,700
1,700
2,300
2,700 4,850
2010
2009
Wholesale credit risk e
Retail credit risk e
Operational risk
Market risk
Fixed asset risk
Other risks f
£m
Notes
a Calculated using an adjusted average over the year and rounded to the nearest £50m
for presentation purposes.
b Total period end economic capital requirement as at 31st December 2010 stood
at £41,550m (2009: £40,750m).
c Average EC charts exclude the EC calculated for pension risk (average pension risk
for 2010 is £3,750m compared with £2,500m in 2009).
d Includes Transition Businesses and capital for central function risks.
e Includes credit risk loans.
f Includes investments in associates, private equity risk, insurance risk, residual value and
business risk. Also includes BGI related exposures post-disposal, mainly the Group’s
investment in BlackRock, Inc.
Barclays PLC Annual Report 2010 www.barclays.com/annualreport10 129
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