Salz Review - Wall Street Journal

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225 Salz Review An Independent Review of Barclays’ Business Practices Appendix J – Variability in Risk Weighted Assets Calculations Differences in RWA calculations can be explained either by differences in intrinsic portfolio risk and asset quality or by differences in banks’ internal models. To distinguish between those two factors, the FSA conducted over time multiple exercises in which banks applied their internal models to three hypothetical portfolios (respectively sovereigns, banks and corporates). The latest of these exercises was undertaken in 2011 and shows a high-level of variability in banks’ estimates for overall risk weights, probability of default and loss given default. For instance, for the same portfolio, estimated capital requirements for the most ‘prudent’ banks were more than three times higher than the most ‘aggressive’ banks. Consequently, the difference in risk weights translates into differences in capital ratio computations. FSA 2011 hypothetical portfolio exercise – Variability of overall risk weights, probability of default and loss given default estimates Index value given a sample mean of 100 250 Risk weights Probability of default Loss given default 200 150 100 Index value of sample mean (100) 50 0 Sovereigns Banks Corporates Notes: Sample mean is set to 100 Source: Financial Stability Report, Bank of England, November 2012
Salz Review An Independent Review of Barclays’ Business Practices 226 Appendix K – Correspondence between Lord Turner and Marcus Agius 316 316 Redactions were inserted by Barclays in the documents provided to the Treasury Select Committee.
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Salz Review - Wall Street Journal

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