RBS 2012 Annual Report Download - page 250

248
Business review Risk and balance sheet management continued
Market risk: Market risk analyses continued
Daily VaR graph*
0
20
40
60
80
100
120
140
160
January February March April May June July AugustSeptember October November December
£m
In ter e st rate CRFXEq uity Commodity Total
Trading book
The table below analyses the VaR for the Group’s trading portfolios, segregated by type of market risk exposure, and between Core, Non-Core,
counterparty exposure management (CEM) and the Group’s total trading VaR excluding CEM.
CEM manages the over-the-counter derivative counterparty credit and funding risk on behalf of Markets and Non-Core, by actively controlling risk
concentrations and reducing unwanted risk exposures. The hedging transactions CEM enters into are booked in the trading book and therefore
contribute to the market risk VaR exposure of the Group. The counterparty exposures themselves are not captured in VaR for regulatory capital. In the
interest of transparency and to more properly represent the exposure, CEM trading book exposure and total trading VaR excluding CEM are disclosed
separately.
2012 2011 2010
Average
£m
Period end
£m
Maximum
£m
Minimum
£m
Average
£m
Period end
£m
Maximum
£m
Minimum
£m
Average
£m
Period end
£m
Maximum
£m
Minimum
£m
Interest rate 62.6 75.6 95.7 40.8 53.4 68.1 79.2 27.5 51.6 57.0 83.0 32.5
Credit spread 69.2 74.1 94.9 44.9 82.7 74.3 151.1 47.4 166.3 133.4 243.2 110.2
Currency 10.3 7.6 21.3 2.6 10.3 16.2 19.2 5.2 17.9 14.8 28.0 8.4
Equity 6.0 3.9 12.5 1.7 9.4 8.0 17.3 4.6 9.5 10.9 17.9 2.7
Commodity 2.0 1.5 6.0 0.9 1.4 2.3 7.0 — 9.5 0.5 18.1 0.5
Diversification (1) (55.4) (52.3) (75.6)
Total 97.3 107.3 137.0 66.5 105.5 116.6 181.3 59.7 168.5 141.0 252.1 103.0
Core 74.6 88.1 118.0 47.4 75.8 89.1 133.9 41.7 103.6 101.2 153.4 58.3
Non-Core 30.1 22.8 41.9 22.0 64.4 34.6 128.6 30.0 105.7 101.4 169.4 63.2
CEM 78.5 84.9 86.0 71.7 50.1 75.8 78.8 30.3
Total (excluding CEM) 47.1 57.6 76.4 32.2 75.5 49.9 150.0 41.6
Note:
(1) The Group benefits from diversification, which reflects the risk reduction achieved by allocating investments across various financial instrument types, currencies and markets. The extent of
diversification benefit depends on the correlation between the assets and risk factors in the portfolio at a particular time.
Key points
x The Group’s average and maximum credit spread VaR for 2012 was
lower than for 2011. This reflected the credit spread volatility
experienced during the financial crisis dropping out of the time
series window, combined with a reduction in the asset-backed
securities trading inventory in Core and the sale of unencumbered
asset-backed securities assets following the prior restructuring of
some monoline hedges in the Non-Core banking book.
x The average and period end interest rate VaR for 2012 were higher
than for 2011 due to pre-hedging and positioning activity ahead of
government bond auctions and syndications, combined with an
increase in exposure to “safe haven” assets in December 2012, as
the US “Fiscal Cliff” negotiations continued without resolution.
x The Non-Core VaR was significantly lower in 2012, as Non-Core
continued its de-risking strategy through the disposal of assets and
unwinding of trades.
x Since late 2011, CEM started to centrally manage the funding risk
on over-the-counter derivatives contracts, causing the VaR to be
considerably higher in 2012 than 2011.
*unaudited
0
20
40
60
80
100
120
140
130
150
January February March April May June July August September October November December
£m
Total Interest Rate Credit Spread Currency Equity Commodity
110
90
70
50
30
10