Barclays 2015 Annual Report Download - page 176

174 I Barclays PLC Annual Report 2015 home.barclays/annualreport
Risk review
Traded market risk review
Review of management measures
The following disclosures provide details on management measures of market risk. See the risk management section on page 128 in Barclays PLC
2015 Pillar 3 Report for more detail on management measures and the differences when compared to regulatory measures.
The table below shows the Total management VaR on a diversified basis by risk factor. Total management VaR includes all trading positions in the
Investment Bank, Non-Core, Africa Banking and Head Office.
Limits are applied against each risk factor VaR as well as Total management VaR, which are then cascaded further by risk managers to each
business.
The daily average, maximum and minimum values of management VaR (audited)
2015 2 014
Management VaR (95%)
For the year ended 31 December Average
£m
Higha
£m
Lowa
£m
Average
£m
Higha
£m
Lowa
£m
Credit risk 11 17 8 11 15 9
Interest rate risk 6 14 4 11 17 6
Equity risk 8 18 4 10 16 6
Basis risk 3 4 2 4 8 2
Spread risk 3 6 2 4 8 3
Foreign exchange risk 3 6 1 4 23 1
Commodity risk 2 3 1 2 8 1
Inflation risk 3 5 2 2 4 2
Diversification effecta(22) n/a n/a (26) n/a n/a
Total management VaR 17 25 12 22 36 17
Average interest rate VaR decreased by £5m to £6m (Dec 14: £11m) during 2015 as certain banking book positions were transferred from the
Investment Bank to Head Office Treasury, reflecting the operational transfer of responsibility (see page 176). These positions are high quality and
liquid banking book assets and are now reported as non-traded market risk exposures. Similarly, lower spread risk and basis risk VaR in 2015 reflect
reduced risk taking.
Average equities risk VaR reduced by 20% to £8m, reflecting reduced cash portfolio activities and a more conservative risk profile maintained in the
derivatives portfolio.
Average foreign exchange risk VaR decreased by 25% to £3m as a result of lower activity in the first half of the year, partially offset by higher volatility
in the global foreign exchange market seen in the second half of the year.
Inflation risk VaR increased by £1m to £3m, primarily due to increased volatility in the inflation market.
Average commodity risk VaR remained stable at £2m, but the high levels reduced significantly year-on-year due to the portfolio having been largely
divested, and reduced client flows impacted by lower oil prices.
2014 2015 2016
£60m
£40m
£20m
0
Value at
Risk (£m)
Gr
oup management VaR
2 0 1 5
2 0
1 4
of da
ys
3
2
3 9
3 2
1 7 8
1 7 8
3 9
4 4
1
2
Daily trading
revenue
>£
The chart above presents the frequency distribution of our daily trading revenues for all material positions included in VaR for 2015. This includes
daily trading revenue generated in the Investment Bank (except for Private Equity and Principal Investments), Treasury, Africa Banking and Non-Core.
The basis of preparation for trading revenue was changed in 2015 to align better with and reflect the portfolio structure included in Group
Management VaR. 2014 figures have been presented on a comparable basis. Disclosed trading revenue includes realised and unrealised mark to
market gains and losses from intraday market moves but excludes commission and advisory fees. The trading revenue measure is based on actual
trading results and holding periods. In contrast, the VaR shows the volatility of a hypothetical measure. To construct this measure, positions are
assumed to be held for one day, and the aggregate unrealised gain or loss is the measure. VaR and the actual revenue figure are not directly
comparable. VaR informs risk managers of the risk implications of current portfolio decisions.
Note
a Diversification effects recognise that forecast losses from different assets or businesses are unlikely to occur concurrently, hence the expected aggregate loss is lower than the sum
of the expected losses from each risk factor area. Historic correlations between losses are taken into account in making these assessments. The high and low VaR reported for each
category did not necessarily occur on the same day as the high and low VaR reported as a whole. Consequently, diversification effect balances for the high and low VaR would not be
meaningful and are therefore omitted from the above table.
Risk performance
Market risk