Barclays 2012 Annual Report Download - page 171

The strategic report Governance Risk review Financial review Financial statements Risk management Shareholder information
The ratio of total assets to total shareholders’ equity was 24x as at 31 December 2012 (2011: 24x). The ratio moved within a month end range of
24x to 28x (2011: 24x to 28x), driven by trading activity fluctuations noted above and changes in gross interest rate derivatives and settlement
balances. Significant drivers of fluctuations other than those noted above comprised:
 an increase to 26x in April 2012 due to increases in settlement balances and trading portfolio assets offset by decreases in gross derivative
balances;
 a further increase to 28x in May 2012 arising from increases in gross derivatives balances and trading portfolio assets; and
 decreases to 26x in August 2012 and 24x in December 2012 as a result of decreases in gross derivative balances, trading portfolio assets and in
settlement balances.
Group Treasury agrees adjusted tangible asset targets at a segment level to manage the Barclays balance sheet and leverage ratio. The Investment
Bank’s adjusted tangible assets are managed and reviewed monthly by the Corporate and Investment Banking Treasury Committee which includes
members of Treasury, Finance and the businesses. The Committee agrees limits with each business across the Investment Bank 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 Committee members. Barclays continues to operate within limits and targets for balance sheet
usage as part of its balance sheet management activities.
Implementation of Basel 3 – leverage impacts
Barclays already measures and reports adjusted gross leverage as an internal measure of balance sheet leverage based on adjusted tangible assets
divided by qualifying regulatory Tier 1 capital. The business operates within limits and targets for balance sheet usage at a Group and business
unit level as part of its balance sheet management activities. As at 31 December 2012, the Group’s adjusted gross leverage was 19x.
CRD IV introduces a non-risk based leverage ratio that is intended to act as a supplementary buffer to the risk based capital requirements. By
1 January 2018 banks will be required to be above the proposed limit of 3% leverage (equivalent to 33x). Prior to that date there are no regulatory
requirements to exceed this threshold, but banks will be required to publish their leverage ratio annually in the Pillar 3 disclosures once the rules
come into force.
The CRD IV leverage ratios are higher than the adjusted gross leverage ratio, primarily due to the CRD IV ratio excluding netting of settlement
balances and cash collateral against derivatives and including off-balance sheet potential future exposures and undrawn commitments, which the
adjusted gross leverage ratio (consistent with many other banks’ treatment) does not. The key adjustments to total assets under the CRD IV
leverage ratio are as follows:
 Netting adjustments: netting permitted for regulatory purposes in relation to derivative and secured financing transaction (SFT) assets against
corresponding liabilities;
 Regulatory deductions: items (comprising goodwill and intangibles, deferred tax asset losses, own paper, cash flow hedge reserve, and pension
assets) deducted from the capital measure are also deducted from total assets to ensure consistency between the numerator and denominator
of the ratio;
 Other adjustments: includes adjustments required to change from an IFRS scope of consolidation to a regulatory scope of consolidation. The
final rules with regards to scope of consolidation for leverage purposes are uncertain;
 Potential Future Exposure on derivatives: add-on calculated by assigning standardised percentages to underlying values on derivative contracts
in accordance with the CRD IV mark-to-market method, which is aimed at creating an assessment of the potential future credit exposure; and
 Undrawn Commitments: regulatory add-on relating to off-balance sheet undrawn commitments based on a credit conversion factor of 10% for
unconditionally cancellable commitments and 100% for other commitments.
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