Barclays 2012 Annual Report Download - page 168

RWAs reduced by 1% to £386.9bn driven by:
 Methodology and model changes: the £38.7bn increase is primarily driven by:
− £18.4bn increase in operational risk driven by a recalibration of risk scenarios taking into account risk events impacting Barclays and the
banking industry;
− £12.0bn increase in market risk within Investment Bank, principally relating to VaR model scope and the sovereign incremental risk charge;
− £4.7bn increase due to the introduction of minimum loss given default parameters for sovereign exposures; and
− £2.8bn increase in credit risk as a result of changes to the treatment of real estate exposures.
 Business risk reduction: the £28.4bn decrease is primarily driven by:
− £24.6bn decrease as a result of Investment Bank risk reduction primarily in market risk and derivative counterparty credit risk, including
a £4.2bn decrease as a result of the sell down of legacy assets (in addition to £1.0bn lower capital deductions related to legacy business);
− £6.9bn credit risk decrease within Corporate Banking, reflecting business risk reduction and the exit from non-core international portfolios;
− Offset by £2.2bn increase within UKRBB predominantly driven by mortgage balance growth.
 Foreign exchange: the £11.3bn decrease is primarily due to the depreciation of the US Dollar, Euro and South African Rand against Sterling; and
 Change in risk parameters: the £3.1bn decrease is primarily driven by improvements in underlying risk profiles and market conditions.
Impact of Basel 3
The new capital requirements regulation and capital requirements directive that implement Basel 3 proposals within the EU (collectively known
as CRD IV) are still under consideration. The requirements are expected to be finalised during 2013, however the implementation date is uncertain.
 CRD IV includes the requirement for a minimum Common Equity Tier 1 (CET1) ratio of 4.5%, a minimum Tier 1 ratio of 6% and a minimum
total capital ratio of 8%. There is an additional requirement for a Capital Conservation Buffer (CCB) of 2.5% and Counter-Cyclical Capital Buffer
(CCCB) of up to 2.5% to be applied when macroeconomic conditions indicate areas of the economy are over-heating. Our working assumption
is that the CCCB would be zero if implemented today;
 In addition globally systemically important banks are expected to hold a buffer of up to 2.5%. For Barclays, this was confirmed in November
2012 by the Financial Stability Board (FSB) to be 2.0% resulting in an expected regulatory target CET1 ratio of 9.0%. This regulatory target
capital requirement will phase in between adoption of CRD IV and 2019;
 The proposed changes to the definition of CET1 also include transitional provisions relating to capital deductions and grandfathering of
ineligible capital instruments that are in line with the FSA’s statement on CRD IV transitional provisions in October 2012;
 Given the phasing of both capital requirements and target levels, in advance of needing to comply with the fully loaded end state requirements
Barclays will have the opportunity to continue to generate additional capital from earnings and take management actions to mitigate the impact
of CRD IV. Our expectation is that ineligible Additional Tier 1 capital, which qualifies for grandfathering under the transitional relief, will be
replaced with eligible capital over time;
 To provide an indication of the potential impact on Barclays, we have estimated our pro forma RWAs and CET1 ratio on both a transitional
and fully loaded basis, reflecting our current interpretation of the rules and assuming they were applied as at 1 January 2013. As at that date
Barclays pro forma RWAs on a CRD IV basis would have been estimated at approximately £468bn, with a resultant transitional CET1 ratio
of approximately 10.6% and a fully loaded CET1 ratio of approximately 8.2%. Further analysis of the impacts are set out on page 167;
 Based on our estimated proforma capital ratios, identified actions and retained earnings, we expect to be in excess of the minimum capital
requirements as they are expected to apply over the transitional period and through to the end state position;
 The Basel 3 guidelines include a proposed leverage metric to be implemented by national supervisors initially under a parallel run for disclosure
purposes only, and migrating to a mandatory limit over a period of five years. Based on our interpretation of the current proposals, the Group’s
CRD IV leverage ratio as at 31 December 2012 would be within the proposed limit of 33x, allowing for transitional relief to Tier 1 capital.
Further analysis of the impacts are set out on page 167;
 The actual impact of CRD IV on capital ratios may be materially different as the requirements and related technical standards have not yet
been finalised, for example provisions relating to the scope of application of the CVA volatility charge and restrictions on short hedges relating
to insignificant financial holdings. The actual impact will also be dependent on required regulatory approvals and the extent to which further
management action is taken prior to implementation.
barclays.com/annualreport166 I Barclays PLC Annual Report 2012
Risk review
Funding risk – Capital continued