RBS 2009 Annual Report Download - page 126

Using these approaches, the RWA requirements by division on a proportional basis are as follows:
2009 2008
RWAs £bn £bn
UK Retail 51.3 45.7
UK Corporate 90.2 85.7
Wealth 11.2 10.8
Global Banking & Markets 123.7 151.8
Global Transaction Services 19.1 17.4
Ulster Bank 29.9 24.5
US Retail & Commercial 59.7 63.9
Other 9.4 7.1
Core 394.5 406.9
Non-Core 171.3 170.9
565.8 577.8
Benefit of APS (127.6) n/a
438.2 577.8
Business review continued
Capital* continued
Future regulatory capital effects
As impairments on the pool of assets arise, these will be required to be
deducted in full from Core Tier 1 Capital in the normal way. The Group
will be entitled to apply these impairments to reduce the First Loss
deduction for the Scheme, potentially leading to a position where the
capital requirement on the Uncapped Basis would no longer for the
assets covered by the APS exceed the Non-APS Requirement and, as a
result, the Group would expect to start reporting the regulatory capital
treatment on the Uncapped Basis.
For further information on APS refer to pages 174 to 183.
Regulatory developments
European Directives
The Group is undertaking the necessary preparations to comply with the
new European Directives which will, or are expected to, come into force
on or before 1 January 2011. These deal with inter alia, the eligibility of
hybrid capital; restrictions on large exposures; enhanced risk
management of securitisation exposures (including a requirement that
banks cannot invest in a securitisation where the originator has not
retained an economic interest); higher capital requirements for re-
securitisations; and strengthening capital requirements for the trading
book.
Basel Committee on Banking Supervision
In December 2009, the Basel Committee issued proposals to strengthen
capital and liquidity of banks. The key elements include: raising the
quality, consistency and transparency of regulatory capital; increased
capital requirements for counterparty exposures on derivatives,
repurchase agreements and securities financing activities; the
introduction of a leverage ratio; promotion of countercyclical measures
to encourage build up of capital buffers and a more forward-looking
provisioning based on expected losses instead of the current ‘incurred
loss’ provisioning model; and the introduction of a global minimum
liquidity standard for internationally active banks, including a short-term
liquidity coverage ratio requirement underpinned by a longer-term
structural liquidity ratio. The Committee is carrying out an impact
assessment in the first part of 2010 to calibrate the new requirements
before issuing final proposals by the end of 2010 for phased
implementation commencing in 2012.
The Group is working with the trade bodies in responding to the various
consultations and will participate fully in the impact assessment.
Basel II
The Group adopted Basel II on 1 January 2008. Pillar 1 focuses on the
calculation of minimum capital required to support the credit, market
and operational risks in the business. For credit risk, the majority of the
Group uses the Advanced Internal Ratings Based Approach for
calculating RWAs.
The Group manages market risk in the trading and non-trading
(treasury) portfolios through the market risk management framework.
The framework includes VaR limits, back-testing, stress testing, scenario
analysis and position/sensitivity analysis.
For operational risk, the Group uses the Standardised Approach, which
calculates operational RWAs based on gross income. In line with other
banks, the Group is considering adopting the advanced measurement
approach for all or part of the business.
RBS Group Annual Report and Accounts 2009124
* unaudited