Barclays 2011 Annual Report Download - page 125

APR replaces specific risk for the correlation trading portfolio and is intended to capture all risk factors relevant to corporate nth-to-default and tranched
credit derivatives. As for IRC, the capital requirement is based on a 99.9% confidence interval over a one year holding period.
When reviewing estimates produced by the CRD3 models the following considerations should be taken into account:
– SVaR uses the same methodology as the DVaR model and hence is subject to the same considerations as this model. In addition, SVaR is calibrated
to a specific 12 month historical stress period which may not reflect a stress period that could arise in the future;
– In common with DVaR, neither IRC nor APR indicate the potential loss beyond the 99th percentile, and they do not measure risk from trades which
are bought and sold in between weekly runs; and
– Both IRC and APR are computed to a 1-in-1,000 year confidence level which cannot be meaningfully backtested. This is in contrast to DVaR, which
can be meaningfully backtested.
Risk control
Market risk is controlled through the use of an appropriate limit framework. Limits are set at the total Barclays Capital level, risk factor level (e.g. interest
rate risk) and business line level (e.g. Emerging Markets). Stress limits and many book limits, such as foreign exchange and interest rate sensitivity
limits, are also used to control risk appetite.
The total DVaR limit, risk factor DVaR limits, and 3W limit are approved by BRC. Primary stress limits are approved by the Chief Risk Officer and are
tabled for noting by BRC. Compliance with limits is monitored by Barclays Capital Market Risk with oversight provided by Group Market Risk.
In 2011, Group Market Risk continued its ongoing programme of conformance visits to Barclays Capital business areas. These visits review both the
current market risk profile and potential market risk developments, as well as verifying conformance with Barclays Market Risk Control Framework.
Risk reporting
Barclays Capital Market Risk produce a number of detailed and summary market risk reports daily, weekly, fortnightly and monthly for business and risk
managers. These are also sent to Group Market Risk for review and inclusion in the Group Daily Market Risk Report. A risk summary is presented at the
Market Risk Committee and Barclays Capital Traded Positions Risk Review.
Analysis of traded market risk exposures (Audited)
The trading environment in 2011 was characterised by weak underlying economic growth as well as uncertain market direction resulting in lower client
activity particularly in the second half of 2011. In this environment, Barclays Capital’s market risk exposure, as measured by average total DVaR,
increased 8% to £57m (2010: £53m).
The three main risk factors affecting DVaR were spread, interest rate and equity risk. From 2010 levels, average DVaR for spread risk fell by £3m (6%)
and interest rate DVaR fell by £16m (48%) reflecting cautious positioning. Equity DVaR increased by £4m (29%) on continued growth of the global
equities business and product offerings.
The diversification effect fell 38% to an average of £40m in 2011 due to increasing cross asset correlation as the European crisis worsened. However,
the tail risk indicated by the expected shortfall and 3W measures fell 9% to £71m and 16% to £121m respectively from 2010 levels.
The daily average, maximum and minimum values of DVaR, Expected Shortfall and 3W were calculated as below:
The daily average, maximum and minimum values of DVaR,
Expected Shortfall and 3W (audited) Year ended 31 December 2011 Year ended 31 December 2010
DVaR (95%) Average
£m
Higha
£m
Lowa
£m
Average
£m
Higha
£m
Lowa
£m
Interest rate risk 17 47 7 33 50 21
Spread risk 45 69 25 48 62 30
Commodity risk 12 18 7 16 25 9
Equity risk 18 34 9 14 29 6
Foreign exchange risk 5 8 2 6 15 2
Diversification effect (40) na na (64) na na
Total DVaR 57 88 33 53 75 36
Expected Shortfall 71 113 43 78 147 47
3W 121 202 67 144 311 72
Note
a The high and low DVaR figures reported for each category did not necessarily occur on the same day as the high and low DVaR reported as a whole. Consequently a diversification effect
balance for the high and low DVaR figures would not be meaningful and is therefore omitted from the above table.
Barclays PLC Annual Report 2011 www.barclays.com/annualreport 123
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