RBS 2013 Annual Report Download - page 342
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Business review Risk and balance sheet management
340
Market risk continued
Non-traded market risk continued
Structured credit portfolio
The structured credit portfolio is held in Non-Core. The risk in this portfolio is not managed using VaR because the Group believes this is not an
appropriate tool for a non-trading book portfolio comprising illiquid debt securities. These assets are reported on a drawn notional and fair value basis,
and managed on a third-party asset and risk-weighted assets basis. Drawn notional represents the amount of cash granted against debt
securities received as part of a structured credit transaction. The table below shows the open market risk in the structured credit portfolio.
Drawn notional Fair value
CDOs (1) CLOs (2) MBS (3) Other ABS (4) Total CDOs (1) CLOs (2) MBS (3) Other ABS (4) Total
2013 £m £m £m £m £m £m £m £m £m £m
1-2 years — — — 4 4 — — — 4 4
5-10 years — 271 — 91 362 — 263 — 68 331
>10 years 149 — 46 103 298 51 — 24 70 145
149 271 46 198 664 51 263 24 142 480
2012
1-2 years — — — 80 80 — — — 74 74
2-3 years — — 27 82 109 — — 24 76 100
4-5 years — — 95 — 95 — — 86 — 86
5-10 years — 310 92 — 402 — 295 44 — 339
>10 years 289 279 380 398 1,346 116 256 253 254 879
289 589 594 560 2,032 116 551 407 404 1,478
2011
1-2 years — — — 27 27 — — — 22 22
2-3 years — — 10 196 206 — — 9 182 191
4-5 years — 37 37 95 169 — 34 30 88 152
5-10 years 32 503 270 268 1,073 30 455 184 229 898
>10 years 2,180 442 464 593 3,679 766 371 291 347 1,775
2,212 982 781 1,179 5,154 796 860 514 868 3,038
Notes:
(1) Collateralised debt obligations.
(2) Collateralised loan obligations.
(3) Mortgage-backed securities.
(4) Asset-backed securities.
Key point
• The total notional and fair value both decreased 67%, to £664 million and £480 million respectively. This was driven by the sale of underlying
assets across all categories, in line with Non-Core strategy.
Regulatory capital
The Group holds capital for two types of non-traded market risk
exposures: NTIRR and non-trading book foreign exchange.
Capital for the Group’s NTIRR is captured under the Pillar 2A process.
This is calculated by considering the potential impact on the economic
value of the Group over a one year horizon. The four main sources of
NTIRR - repricing, yield curve, basis and optionality risks - are captured
in the calculation.
Pillar 1 capital must be held for non-trading book foreign exchange
exposures, as outlined under BIPRU 7.5.3. The Group does not hold
capital for its structural foreign exchange exposures as these are
excluded from the calculations as outlined under BIPRU 7.5.4.
The Group’s non-traded equity risk is captured in credit risk RWAs.
The Group’s capital calculations under ICAAP are also used for economic
capital purposes.