Barclays 2013 Annual Report Download - page 322

Note 18: Fair value of assets and liabilities continued
Third-party credit enhancements
Structured and brokered certificates of deposit issued by Barclays Group are insured up to $250,000 per depositor, by the Federal Deposit
Insurance Corporation (FDIC) in the United States of America. The FDIC is funded by premiums that Barclays and other banks pay for deposit
insurance coverage. The carrying value of these issued certificates of deposit that are designated under the IAS 39 fair value option includes this
third party credit enhancement. The on-balance sheet value of these brokered certificates of deposit amounted to £3.1bn at 31 December 2013.
Valuation control framework
The Finance-Product Control-Valuations function is responsible for independent price verification, oversight of fair value adjustments and
escalation of valuation issues. This process covers all fair value positions and is a key control in ensuring the material accuracy of valuations.
Governance over the valuation process is the responsibility of the Valuation Committee. This Committee meets monthly and is responsible for
overseeing valuation and fair value adjustment policy within Corporate Banking and Investment Banking and this is the forum to which valuation
issues are escalated.
Price verification uses independently sourced data that is deemed most representative of the market. The characteristics against which the data
source is assessed are independence, reliability, consistency with other sources and evidence that the data represents an executable price. The
most current data available at balance sheet date is used. Where significant variances are noted in the independent price verification process, an
adjustment is taken to the fair value position. Additional fair value adjustments may be taken to reflect such factors as bid-offer spreads, market
data uncertainty, model limitations and counterparty risk – further detail on these fair value adjustments is disclosed on pages 318 and 319.
Comparison of carrying amounts and fair values for assets and liabilities not held at fair value
The following table summarises the fair value of financial assets and liabilities measured at amortised cost on the Group’s balance sheet where
the carrying amount is not a reasonable approximation of fair value:
2013 2012
Carrying
amount
£m
Fair value
£m
Carrying
amount
£m
Fair value
£m
Financial assets
Loans and advances to banks 37,853 37,839 40,462 40,462
Loans and advances to customers:
– Home loans 179,527 170,793 174,988 164,608
– Credit cards, unsecured and other retail lending 64,551 63,944 59,577 58,494
– Finance lease receivables 5,827 5,759 6,837 6,863
– Corporate loans 180,506 176,673 182,504 176,727
Reverse repurchase agreements and other similar secured lending 186,779 186,756 176,522 176,461
Financial liabilities
Deposits from banks (54,834) (54,865) (77,012) (77,025)
Customer accounts:
– Current and demand accounts (134,849) (134,849) (127,786) (127,786)
– Savings accounts (123,824) (123,886) (99,875) (99,875)
– Other time deposits (169,229) (168,959) (157,750) (157,752)
Debt securities in issue (86,693) (87,022) (119,525) (119,669)
Repurchase agreements and other similar secured borrowing (196,748) (196,748) (217,178) (217,178)
Subordinated liabilities (21,695) (22,193) (24,018) (23,467)
The fair value is an estimate of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. As a wide range of valuation techniques are available, it may not be appropriate to directly compare
the Barclays fair value information to independent market or other financial institutions. Different valuation methodologies and assumptions can
have a significant impact on fair values which are based on unobservable inputs.
Financial assets
The carrying value of financial assets held at amortised cost (including loans and advances to banks and customers, and other lending such as
reverse repurchase agreements and cash collateral on securities borrowed) is determined in accordance with the relevant accounting policy noted
on pages 324 and 325.
Loans and advances to banks
The fair value of loans and advances, for the purpose of this disclosure, is derived from discounting expected cashflows in a way that reflects the
current market price for lending to issuers of similar credit quality. Where market data or credit information on the underlying borrowers is
unavailable, a number of proxy / extrapolation techniques are employed to determine the appropriate discount rates.
There is minimal difference between the fair value and carrying amount due to the short term nature of the lending (i.e. predominantly overnight
deposits) and the high credit quality of counterparties.
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320 Barclays PLC Annual Report 2013
Notes to the financial statements
For the year ended 31 December 2013 continued