Barclays 2013 Annual Report Download - page 205

CRD IV as implemented by the Prudential Regulation Authority
The new Capital Requirements Regulation and amended Capital Requirements Directive have implemented Basel 3 within the EU (collectively
known as CRD IV) with effect from 1 January 2014. However, certain aspects of CRD IV are dependent on final technical standards to be issued
by the European Banking Authority (EBA) and adopted by the European Commission as well as UK implementation of the rules. Barclays has
calculated RWAs, Capital and Leverage ratios reflecting our interpretation of the current rules and guidance. Further changes to the impact of
CRD IV may emerge as the requirements are finalised and implemented within Barclays.
Capital ratios
Barclays continues to be in excess of minimum CRD IV capital ratios on both a transitional and fully loaded basis.
As at 31 December 2013 Barclays exceeded the PRA target fully loaded CET1 ratio of 7%. On a transitional basis the PRA has implemented a
minimum requirement CET1 ratio of 4%, Tier 1 ratio of 5.5% (in 2014) and Total Capital ratio of 8%.
Barclays’ current regulatory target is to meet a fully loaded CET1 ratio of 9% by 2019, plus a Pillar 2A add-on. The 9% comprises the required 4.5%
minimum CET1 ratio and, phased in from 2016, a Combined Buffer Requirement made up of a Capital Conservation Buffer (CCB) of 2.5% and an
expected Globally Systemically Important Institution (G-SII) buffer of 2%.
Under current PRA guidance, the Pillar 2A add-on will need to be met with 56% CET1 from 2015, which would equate to approximately 1.4%a of
RWAs if the requirement were to be applied today. The Pillar 2A add-on would be expected to vary over time according to the PRA’s individual
capital guidance.
In addition, a Counter-Cyclical Capital Buffer (CCCB) and/or additional Sectoral Capital Requirements (SCR) may be required by the Bank of
England to protect against perceived threats to financial stability. CRD IV also includes the potential for a Systemic Risk Buffer (SRB). These buffers
could be applied at the Group level or at a legal entity, sub-consolidated or portfolio level. No CCCB, SCR or SRB has currently been set by the Bank
of England.
Capital resources
The PRA has announced the acceleration of transitional provisions relating to CET1 deductions and filters so the fully loaded requirements are
applicable from 1 January 2014, with the exception of unrealised gains on available for sale debt and equity. As a result, transitional capital ratios
are now closely aligned to fully loaded ratios.
Following the issuance of the EBA’s final draft technical standard on own funds, a deduction has been recognised for foreseeable dividends. As at
31 December 2013, this represents an accrual for the final dividend for 2013, calculated at 3.5p per share, and the coupons on other equity
accounted instruments.
Grandfathering limits on capital instruments, previously qualifying as Tier 1 and Tier 2, are unchanged under the PRA transitional rules.
The Prudential Valuation Adjustment (PVA) is shown as fully deducted from CET1 upon adoption of CRD IV. PVA is subject to a technical standard
being drafted by the EBA and the impact is currently based on methodology agreed with the PRA. The PVA deduction as at 31 December 2013 was
£2.5bn.
Barclays continues to recognise minority interests in eligible subsidiaries within African operations as CET1 (subject to regulatory haircuts
prescribed in CRD IV) in accordance with our application of regulatory requirements on own funds.
As a result of the application of the EBA’s final draft technical standard, PRA guidance and management actions taken during 2013, net long
non-significant holdings in financial entities amount to £3.5bn and are below the 10% CET1 threshold that would require a capital deduction.
RWAs
The PRA has confirmed Barclays model approvals under CRD IV, with certain provisions reflecting relevant changes to the rules and guidance; the
impact of which has been reflected in our CRD IV disclosures where applicable. Barclays models are subject to continuous monitoring, update and
regulatory review, which may result in future changes to CRD IV capital requirements.
It is assumed that corporates, pension funds and sovereigns that meet the eligibility conditions are exempt from CVA volatility charges.
Under CRD IV rules, all Central Clearing Counterparties (CCPs) are deemed to be ‘Qualifying’ on a transitional basis. The final determination of
Qualifying status will be made by the European Securities and Markets Authority (ESMA).
RWAs include 1250% risk weighting of securitisation positions that were previously deducted from Core Tier 1 and Tier 2 capital. The RWA
increases are reflected in Credit Risk, Counterparty Credit Risk and Market Risk.
Securitisation RWAs include the impact of CRD IV on applying either standardised or advanced methods for securitisation exposures dependent
on the character of the underlying assets.
Note
a Based on a point in time assessment made by the PRA, at least annually. The PRA is developing proposals to reform its Pillar 2 framework and, as noted in PS7/13 (PRA policy
statement PS7/13 on strengthening capital standards published in December 2013), it expects to consult on those proposals during the course of 2014. The EBA is also
developing guidelines on the Supervisory Review and Evaluation Process (SREP) and on Pillar 2 capital, which are likely to affect how the PRA approaches Pillar 2.
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