Interim Report - 21 of 28 | RNS | Ticker

Interim Report - 21 of 28

RNS Announcement

RNS Number : 2084P

HSBC Holdings PLC

15 August 2014

Capital

	Page	App¹	Tables	Page

Capital overview .........................................	176		Capital ratios .............................................................	176
			Total regulatory capital and risk-weighted assets.........	176

Capital management .................................		193
Approach and policy .....................................		193
Stress testing ..................................................		193
Risks to capital ..............................................		193
Risk-weighted asset targets .............................		193
Capital generation .........................................		194

Capital measurement and allocation ......		194
Regulatory capital ..........................................		194
Pillar 1 capital requirements ..........................		194
Pillar 2 capital requirements ..........................		196
Pillar 3 disclosure requirements ......................		196

Risk-weighted assets and total regulatory capital ......................................................	177		RWAs by risk type .......................................................	177
			RWAs by global businesses .........................................	177
			RWAs by geographical regions ...................................	177
Credit risk RWAs ...........................................	178		Credit risk exposure - RWAs by geographical region ..	178
			Credit risk exposure - RWAs by global business ..........	178
			RWA movement by key driver - credit risk - IRB only .	179
			RWA movement by global business by key driver - credit risk - IRB only ..............................................	180
Counterparty credit risk RWAs ......................	181		Counterparty credit risk RWAs ....................................	181
			RWA movement by key driver - counterparty credit risk - advanced approach .............................	182
Market risk RWAs .........................................	182		Market risk RWAs ........................................................	182
			RWA movement by key driver - market risk - internal model based ...........................................................	182
Operational risk RWAs ..................................	183

RWA movement by key driver - basis of preparation and supporting notes ........		196
Credit risk drivers - definitions and quantification .............................................		196
Counterparty risk drivers - definitions and quantification .............................................		198
Market risk drivers - definitions and quantification .............................................		198

Movement in total regulatory capital in the first half of 2014 ...............................	183		Source and application of total regulatory capital .....	183

Capital structure ........................................	184		Composition of regulatory capital ..............................	184
			Reconciliation of regulatory capital from Year 1 transitional basis to an estimated CRD IV end point basis .......................................................................	185
			Capital and RWA movements by major driver - CRD IV end point basis .......................................................	186
Leverage ratio ...............................................	186		Estimated leverage ratio .............................................	187

Regulatory capital buffers ........................	187
G-SII buffer ....................................................	187
Capital conservation buffer ............................	188
Countercyclical and other macroprudential buffers ........................................................	188
Pillar 2 and the 'PRA buffer' .........................	188
Regulatory stress testing ................................	189
RWA integrity ...............................................	189

Other regulatory updates .........................	190
Structural banking reform ..............................	190

1. Appendix to Capital.

Our objective in the management of Group capital is to maintain appropriate levels of capital to support our business strategy and meet our regulatory requirements.

Capital highlights

· Year 1 transition CET1 ratio 11.2%, up from 10.8% at the end of 2013, as a result of capital generation and the benefit of higher fourth interim scrip take-up.

· End point CET1 ratio 11.3%, up from 10.9% at the end of 2013, as a result of similar drivers.

Capital overview

Capital ratios

	At	At	At
	30 Jun	30 Jun	31 Dec
	2014	2013	2013
	%	%	%
CRD IV year 1 transition
Common equity tier 1 ratio ......................	11.2	n/a	10.8
Tier 1 ratio ...............	12.3	n/a	12.0
Total capital ratio .....	15.4	n/a	14.9

CRD IV end point
Common equity tier 1 ratio ......................	11.3	10.1	10.9

Basel 2.5
Core tier 1 ratio ........	n/a	12.7	13.6
Tier 1 ratio ...............	n/a	13.6	14.5
Total capital ratio .....	n/a	16.6	17.8

Total regulatory capital and risk-weighted assets

	CRD IV	Basel 2.5
	Year 1 transition	Basel 2.5
	At	At	At
	30 Jun	30 Jun	31 Dec
	2014	2013	2013
	US$m	US$m	US$m

Common equity/Core tier 1 capital .......	140,070	140,890	149,051
Additional tier 1 capital .................	13,813	9,252	9,104
Tier 2 capital ..........	38,951	33,308	35,854

Total regulatory capital .................	192,834	183,450	194,009

Risk-weighted assets	1,248,572	1,104,764	1,092,653

On 1 January 2014, CRD IV came into force and capital and RWAs at 30 June 2014 are calculated and presented on this basis. Prior to this date, they were calculated and presented in accordance with the previous regime under CRD III, also referred to as 'Basel 2.5'.

Prior to implementation, CRD IV capital and RWAs were estimates based on the Group's interpretation of CRD IV legislation and the rules of the PRA available at the time (details of basis of preparation of these estimates can be found on page 324 of the Annual Report and Accounts 2013 and page 197 of the Interim Report 2013, respectively).

The capital and RWAs on a CRD IV basis incorporate the effect of the PRA's final rules in their Policy Statement ('PS 7/13') issued in December 2013. This transposed various areas of national discretion within the final CRD IV legislation into UK law. In its final rules, the PRA did not adopt most of the CRD IV transitional provisions available, instead opting for an acceleration of the CRD IV end point definition of common equity tier 1 ('CET1'), with the exception that the CRD IV transitional provisions for unrealised gains were applied, such that unrealised gains on investment property and available-for-sale securities are not recognised for capital until 1 January 2015. As a result, our transitional capital ratio is slightly lower than the comparable end point capital ratio.

In April 2014, the PRA published its rules and supervisory statements implementing some of the CRD IV provisions relating to capital buffers, further details of which are provided in the regulatory buffers section on page 187.

In addition, the PRA has also published its expectations in relation to capital ratios for major UK banks and building societies, namely that from 1 July 2014, capital resources should be held equivalent to at least 7% of RWAs using a CRD IV end point definition of CET1. This PRA capital guidance applies instead of the minimum 4% CET1 transitional ratio applicable during 2014 under CRD IV.

The PRA also established a forward-looking CRD IV end point CET1 target ratio for the Group to be met by 2019.

Despite the rules published to date, there remains continued uncertainty around the amount of capital that UK banks will be required to hold. This relates specifically to the quantification and interaction of capital buffers and Pillar 2, where further PRA consultations are due in 2014. Furthermore, there are a significant number of draft and unpublished EBA technical and implementation standards due in 2014.

Our approach to managing Group capital is designed to ensure that we exceed current regulatory requirements and that we respect the payment priority of our capital providers. We complied with the PRA's regulatory capital adequacy requirements throughout 2013 and the first half of 2014. We are also well placed to meet our expected future capital requirements.

We manage our capital position to meet an internal target CET1 ratio on an end point basis of greater than 10%. We continue to keep this target under review.

A summary of our policies and practices regarding capital management, measurement and allocation is provided in the Appendix to Capital on page 193.

Risk-weighted assets and total regulatory capital

RWAs by risk type

		CRD IV
	At	transition and	At
	30 Jun	end point	31 Dec
	2014	31 Dec 2013	2013
	US$bn	US$bn	US$bn

Credit risk ....................................................................................................	966.0	936.5	864.3
Counterparty credit risk ...............................................................................	101.4	95.8	45.8
Market risk ..................................................................................................	63.1	63.4	63.4
Operational risk ...........................................................................................	118.1	119.2	119.2

	1,248.6	1,214.9	1,092.7

Of which:
- run-off portfolios .................................................................................	121.6	142.3	104.8
- legacy credit in GB&M .........................................................................	52.7	63.7	26.3
- US CML and Other ...............................................................................	68.9	78.6	78.5
- Card and Retail Services¹ .......................................................................	-	1.1	1.1

For footnote, see page 192.

RWAs by global businesses

	CRD IV transition and end point	Basel 2.5 at	Basel 2.5 at
	30 Jun 2014	30 Jun 2013	31 Dec 2013
	US$bn	US$bn	US$bn

Retail Banking and Wealth Management ......................................................	223.0	243.4	233.5
Commercial Banking ....................................................................................	424.9	385.9	391.7
Global Banking and Markets .........................................................................	537.3	429.2	422.3
Global Private Banking .................................................................................	22.1	21.8	21.7
Other ...........................................................................................................	41.3	24.5	23.5

	1,248.6	1,104.8	1,092.7

RWAs by geographical regions²

	CRD IV transition and end point	Basel 2.5 at	Basel 2.5 at
	30 Jun 2014	30 Jun 2013	31 Dec 2013
	US$bn	US$bn	US$bn

Europe .........................................................................................................	393.6	305.4	300.1
Asia ..............................................................................................................	481.1	413.1	430.7
Middle East and North Africa .......................................................................	62.7	64.2	62.5
North America .............................................................................................	236.9	236.4	223.8
Latin America ..............................................................................................	96.8	96.7	89.5

	1,248.6	1,104.8	1,092.7

Credit risk RWAs

Credit risk exposure - RWAs by geographical region

	Europe	Asia³	MENA	North America	Latin America	Total
	US$bn	US$bn	US$bn	US$bn	US$bn	US$bn

RWAs at 30 June 2014
IRB advanced approach ...............	211.2	209.9	11.2	155.3	12.0	599.6
IRB foundation approach ............	11.4	-	4.1	-	-	15.5
Standardised approach .................	46.9	174.3	39.0	30.7	60.0	350.9

	269.5	384.2	54.3	186.0	72.0	966.0

RWAs at 31 December 2013
IRB advanced approach ...............	157.1	182.9	11.2	161.5	8.5	521.2
IRB foundation approach ............	9.8	-	3.8	-	-	13.6
Standardised approach .................	44.5	165.9	40.0	22.7	56.4	329.5

	211.4	348.8	55.0	184.2	64.9	864.3

For footnote, see page 192.

Credit risk exposure - RWAs by global businesses

	Principal RBWM	RBWM (Run-off)	Commercial Banking		Global Banking & Markets	Global Private Banking	Other	Total
	US$bn	US$bn		US$bn	US$bn	US$bn	US$bn	US$bn

RWAs at 30 June 2014
IRB advanced approach ..........	60.3	60.6		206.2	249.5	11.1	11.9	599.6
IRB foundation approach .......	-	-		7.2	6.9	0.1	1.3	15.5
Standardised approach ............	59.0	5.5		178.5	73.6	6.5	27.8	350.9

	119.3	66.1		391.9	330.0	17.7	41.0	966.0

RWAs at 31 December 2013
IRB advanced approach ..........	58.4	72.6		183.2	192.8	10.4	3.8	521.2
IRB foundation approach .......	-	-		6.3	5.8	0.1	1.4	13.6
Standardised approach ............	60.6	3.1		169.3	71.6	6.9	18.0	329.5

	119.0	75.7		358.8	270.2	17.4	23.2	864.3

Credit risk RWAs are calculated using three approaches as permitted by the PRA. For consolidated Group reporting we have adopted the advanced IRB approach for the majority of our business, with a small proportion being on the foundation IRB approach and the remaining portfolios on the standardised approach.

Standardised approach

For portfolios treated under the standardised approach, credit risk RWAs increased by US$21.4bn. The move to a CRD IV basis increased RWAs on 1 January 2014 by US$7.1bn. This movement was mainly comprised of material holdings and deferred tax asset amounts in aggregate below the capital threshold risk-weighted at 250%
(US$28.3bn), partially offset by a reclassification of non-credit obligation assets to the IRB approach for reporting purposes (US$16.3bn) and netting of collective impairments against EAD under the standardised approach (US$3.5bn).

In the first quarter of 2014, several individually immaterial portfolios moved from the IRB to the standardised approach, increasing standardised RWAs by US$6.0bn, and reducing IRB RWAs by US$4.8bn.

Corporate growth in Asia, Middle East and North Africa and Latin America increased RWAs by US$8.9bn. This was partially offset by the reclassification of Vietnam Technological & Commercial Joint Stock Bank from an associate to an investment, which reduced RWAs by US$1.1bn.

RWA movement by geographical regions by key driver - credit risk - IRB only

	Europe	Asia³	MENA	North America	Latin America	Total
	US$bn	US$bn	US$bn	US$bn	US$bn	US$bn
RWAs at 1 January 2014 on
Basel 2.5 basis .........................	166.9	182.9	15.0	161.5	8.5	534.8

Foreign exchange movement ......	4.9	0.8	(0.2)	(0.1)	(0.4)	5.0
Acquisitions and disposals ............	(2.3)	-	(0.5)	(2.6)	(0.1)	(5.5)
Book size ....................................	3.0	13.0	(0.2)	(0.5)	1.9	17.2
Book quality ...............................	(1.7)	0.7	0.7	(2.3)	0.4	(2.2)
Model updates .............................	14.9	0.3	-	(5.1)	-	10.1
- portfolios moving onto IRB approach .....................	-	-	-	-	-	-
- new/updated models ..............	14.9	0.3	-	(5.1)	-	10.1

Methodology and policy .............	36.9	12.2	0.5	4.4	1.7	55.7
- internal updates ....................	(9.8)	(5.6)	(0.2)	(2.6)	(0.1)	(18.3)
- external updates - regulatory.	2.2	6.7	(0.2)	0.7	0.1	9.5
- CRD IV impact .....................	37.0	5.7	0.4	4.9	0.2	48.2
- NCOA moving from STD to IRB	7.5	5.4	0.5	1.4	1.5	16.3


Total RWA movement ...............	55.7	27.0	0.3	(6.2)	3.5	80.3

RWAs at 30 June 2014 on CRD IV basis ........................................	222.6	209.9	15.3	155.3	12.0	615.1

RWAs at 1 January 2013 on Basel 2.5 basis .........................	150.7	162.3	12.6	187.1	11.2	523.9

Foreign exchange movement ......	(6.0)	(3.2)	(0.4)	(1.6)	(0.5)	(11.7)
Acquisitions and disposals ............	(1.6)	-	-	(8.2)	-	(9.8)
Book size ....................................	2.0	10.4	0.1	(5.5)	(0.4)	6.6
Book quality ...............................	2.4	3.7	1.5	(7.1)	0.1	0.6
Model updates .............................	(1.8)	-	0.1	(0.2)	-	(1.9)
- portfolios moving onto IRB approach ....................	-	-	-	-	-	-
- new/updated models .............	(1.8)	-	0.1	(0.2)	-	(1.9)

Methodology and policy .............	2.7	0.4	-	10.0	0.1	13.2
Internal updates .......................	0.2	(6.0)	-	(0.2)	0.1	(5.9)
External updates ......................	2.5	6.4	-	10.2	-	19.1


Total RWA movement ...............	(2.3)	11.3	1.3	(12.6)	(0.7)	(3.0)

RWAs at 30 June 2013 on Basel 2.5 basis .........................	148.4	173.6	13.9	174.5	10.5	520.9

RWAs at 1 January 2013 on Basel 2.5 basis .........................	150.7	162.3	12.6	187.1	11.2	523.9

Foreign exchange movement ......	3.3	(4.5)	(0.5)	(1.9)	(1.0)	(4.6)
Acquisitions and disposals ............	(1.5)	-	-	(8.6)	(1.7)	(11.8)
Book size ....................................	2.1	21.2	1.4	(10.6)	0.2	14.3
Book quality ...............................	(1.5)	5.3	1.3	(10.8)	(0.3)	(6.0)
Model updates .............................	11.6	-	0.1	(0.2)	-	11.5
- portfolios moving onto IRB approach ....................	13.4	-	-	-	-	13.4
- new/updated models .............	(1.8)	-	0.1	(0.2)	-	(1.9)

Methodology and policy .............	2.2	(1.4)	0.1	6.5	0.1	7.5
Internal updates .......................	(0.2)	(7.8)	0.1	(0.6)	0.1	(8.4)
External updates ......................	2.4	6.4	-	7.1	-	15.9


Total RWA movement ...............	16.2	20.6	2.4	(25.6)	(2.7)	10.9

RWAs at 31 December 2013 on Basel 2.5 basis .........................	166.9	182.9	15.0	161.5	8.5	534.8

For footnote, see page 192.

RWA movement by global businesses by key driver - credit risk - IRB only

	Principal RBWM	US run-off portfolio	Total RBWM	CMB	GB&M	GPB	Other	Total
	US$bn	US$bn	US$bn	US$bn	US$bn	US$bn	US$bn	US$bn
RWAs at 1 January 2014 on Basel 2.5 basis ...................	58.4	72.6	131.0	189.5	198.5	10.6	5.2	534.8
Foreign exchange movement	0.5	-	0.5	2.2	2.1	0.2	-	5.0
Acquisitions and disposals .....	-	-	-	-	(5.5)	-	-	(5.5)
Book size ..............................	1.1	(3.4)	(2.3)	11.7	8.5	(0.4)	(0.3)	17.2
Book quality .........................	(1.8)	(4.0)	(5.8)	2.8	0.7	(0.3)	0.4	(2.2)
Model updates .......................	0.1	(4.9)	(4.8)	9.3	5.3	0.3	-	10.1
- portfolios moving onto IRB approach .............	-	-	-	-	-	-	-	-
- new/updated models .......	0.1	(4.9)	(4.8)	9.3	5.3	0.3	-	10.1

Methodology and policy .......	2.0	0.3	2.3	(2.1)	46.8	0.8	7.9	55.7
- internal updates .............	(2.6)	-	(2.6)	(5.5)	(9.9)	(0.3)	-	(18.3)
- external updates - regulatory	-	-	-	2.5	6.3	0.5	0.2	9.5
- CRD IV impact .............	-	-	-	(0.7)	48.6	0.2	0.1	48.2
- NCOA moving from STD to IRB ........................	4.6	0.3	4.9	1.6	1.8	0.4	7.6	16.3

Total RWA movement .........	1.9	(12.0)	(10.1)	23.9	57.9	0.6	8.0	80.3

RWAs at 30 June 2014 on CRD IV basis .....................	60.3	60.6	120.9	213.4	256.4	11.2	13.2	615.1

Internal ratings-based approach

Credit risk RWA movements by key driver for portfolios treated under the IRB approach are set out in the table below. For the basis of preparation, see Appendix to Capital on page 193. For portfolios treated under IRB approach, credit risk RWAs increased by US$80.3bn of which US$5.0bn was due to foreign exchange movements.

Acquisitions and disposals

In GB&M, the sale of ABSs in North America reduced RWAs by US$2.7bn. Additionally, GB&M continued to manage down the securitisation positions held through the sale of certain structured investment conduit positions, lowering RWAs by US$2.0bn in Europe.

The disposal of our businesses in Colombia and Jordan resulted in a reduction in IRB RWAs of US$0.2bn and US$0.5bn in Latin America and Middle East and North Africa, respectively.

Book size

Book size movement reflected higher corporate lending, including term and trade-related lending, increasing RWAs by US$16.2bn in Asia, Europe and North America for CMB and GB&M. The Group's exposure to sovereigns principally arises from balance sheet and liquidity management, investment services and mandatory deposits, and those holdings are the main driver of RWA sovereign movements in GB&M across a number of regions. Overall, sovereign book growth increased RWAs by US$1.0bn, mainly in Asia and Latin America.

In North America, in RBWM, continued run‑off of the US CML retail mortgage portfolios resulted in a book size RWA reduction of US$3.4bn.

Book quality

Book quality improvements in Principal RBWM relate to risk model realignment for personal lending portfolios and favourable shifts in portfolio quality in Europe which reduced RWAs by US$1.8bn.

RWAs reduced by US$4.0bn in the US run-off portfolio, primarily as a consequence of continued run-off and the sale of lower quality loans that resulted in an improvement in the quality of the residual portfolio.

This was partially offset by increases in RWAs resulting from adverse movements in average customer credit quality in corporate and sovereign portfolios in Asia, Middle East and North Africa and North America, increasing RWAs by US$3.1bn.

Model updates

In Europe, an LGD floor applied to UK corporate portfolios resulted in an increase in RWAs of US$14.8bn in CMB and GB&M. This was partially offset by model updates in North America, primarily the implementation of new risk models for the US mortgage run-off portfolio, resulting in a decrease in RWAs of US$4.9bn.

Methodology and policy changes

Methodology and policy updates increased RWAs by US$55.7bn. The increase primarily related to the implementation of CRD IV rules at 1 January 2014, having an RWA impact of US$48.2bn. The main CRD IV movements arose from securitisation positions that were previously deducted from capital and are now included as a part of credit risk RWAs and risk-weighted at 1,250%, resulting in a US$40.2bn increase in RWAs as well as the introduction of an asset valuation correlation multiplier for financial counterparties, producing a US$9.2bn increase in RWAs.

Selected portfolios with a low default history mainly in Europe, Asia and North America, were subjected to external updates with the introduction of LGD floors, increasing RWAs by US$9.8bn.

This was partially offset by an internal update consisting of a transfer of individually immaterial portfolios moving to standardised approach, reducing IRB RWAs by US$4.8bn. A further decrease in RWAs of US$7.4bn arose from the adjustment of regulatory accounting value of GB&M legacy credit portfolio positions by their associated available-for-sale reserves.

In Asia, internal methodology changes associated with trade finance products accounted for a reduction in RWAs of US$4.6bn.

Counterparty credit risk RWAs

CCR increased by US$55.7bn, of which US$28.6bn relates to advanced approach. The RWA increase of US$27.1bn for standardised approach mainly relates to the implementation of CRD IV on 1 January 2014, which introduced credit valuation adjustment and central counterparty ('CCP') RWAs.

Advanced approach

Credit valuation adjustment and asset value correlation multiplier for financial counterparties introduced by the implementation of CRD IV increased RWAs by US$6.8bn and US$10.2bn respectively on 1 January 2014.

Within external regulatory and model updates, selected portfolios were subject to PRA LGD floors, which increased RWAs by US$9.7bn, mainly in Europe and Asia. Decreases in RWAs from internal methodology updates were mainly the result of changes in qualifying central counterparties and additional CVA exemptions.

The increase in book size was mainly driven by an increase in foreign exchange derivatives and reverse repo positions.

Counterparty credit risk RWAs

	At	At	At
	30 June	30 June	31 December
	2014	2013	2013
Counterparty credit risk	US$bn	US$bn	US$bn

Advanced approach ......................................................................................	70.8	45.1	42.2
- CCR IRB approach ................................................................................	65.2	45.1	42.2
- CVA ......................................................................................................	5.6	-	-

Standardised approach ..................................................................................	30.6	3.5	3.5
- CCR standardised approach ....................................................................	3.9	3.5	3.5
- CVA ......................................................................................................	22.2	-	-
- CCP .......................................................................................................	4.5	-	-


RWAs ..........................................................................................................	101.4	48.6	45.7

RWA movement by key driver - counterparty credit risk - advanced approach

	On CRD IV basis	On Basel 2.5 basis
	Half-year to	Half-year to	Year to
	30 Jun 2014	30 Jun 2013	31 Dec 2013
	US$bn	US$bn	US$bn

RWAs at beginning of period on Basel 2.5 basis ............................................	42.2	45.7	45.7

Book size .....................................................................................................	3.2	1.0	(0.9)
Book quality .................................................................................................	(0.3)	(1.0)	(2.7)
Model updates ..............................................................................................	2.2	-	-
Methodology and policy ...............................................................................	23.5	(0.6)	0.1
- internal regulatory updates ....................................................................	(1.0)	(0.6)	0.1
- external regulatory updates ...................................................................	7.5	-	-
- CRD IV impact .....................................................................................	17.0


Total RWA movement ................................................................................	28.6	(0.6)	(3.5)

RWAs at end of period .................................................................................	70.8	45.1	42.2

Market risk RWAs

	At	At	At
	30 June	30 June	31 December
	2014	2013	2013
	US$bn	US$bn	US$bn
Internal model based
VaR ..............................................................................................................	5.6	5.7	4.9
Stressed VaR .................................................................................................	7.8	6.9	9.4
Incremental risk charge ................................................................................	24.9	24.2	23.1
Comprehensive risk measure ........................................................................	2.0	3.1	2.6
Other VaR and stressed VaR ..........................................................................	9.2	19.6	12.2

Internal model based .....................................................................................	49.5	59.5	52.2
Standardised approach ..................................................................................	13.6	11.4	11.2

	63.1	70.9	63.4

RWA movement by key driver - market risk - internal model based

	Half-year to		Year to
	30 June	30 June	31 December
	2014	2013	2013
	US$bn	US$bn	US$bn

RWAs at beginning of period on Basel 2.5 basis.............................................	52.2	44.5	44.5

Movement in risk levels ...............................................................................	0.9	(4.6)	(14.5)
Model updates ..............................................................................................	-	17.6	17.6
Methodology and policy ...............................................................................	(3.6)	2.0	4.6
- internal regulatory updates ....................................................................	0.5	2.0	4.6
- external regulatory updates ...................................................................	(4.1)	-	-


Total RWA movement ................................................................................	(2.7)	15.0	7.7

RWAs at end of period .................................................................................	49.5	59.5	52.2

Total market risk RWAs remained relatively stable during the first half of the year, decreasing marginally by US$0.3bn.

Movements relating to changes in risk levels reflected an increase in the incremental risk charge as a result of increased exposures with sovereign counterparties, with an impact of US$4.2bn partially offset by a decrease of trading positions which led to an RWA reduction of US$2.8bn.

Methodology and policy movements mainly relate to a regulatory approval for a change in the basis of consolidation for modelled market risk charges delivering a reduction in RWAs of US$4.1bn.

Market risk RWAs movements for portfolios not within the scope of modelled approaches resulted in an increase of US$2.4bn, mainly related to trading book securitisation positions that were previously deducted from capital (US$2.6bn).
Operational risk RWAs

The reduction in operational risk RWAs of US$1.1bn was mainly due to the continuing amortisation of the operational risk RWAs for the US CRS portfolio disposed of in May 2012.

Movement in total regulatory capital in the first half of 2014

Source and application of total regulatory capital

	CRD IV Year 1 transition	Basel 2.5
	Half-year to 30 Jun 2014 US$m	Half-year to 30 Jun 2013 US$m	Half-year to 31 Dec 2013 US$m
Movement in total regulatory capital
Opening common equity/core tier 1 capital ..................................................	131,233	138,789	140,890
Contribution to common equity/core tier 1 capital from profit for the period ...................................................................................................	10,045	10,297	6,827
Consolidated profits attributable to shareholders of the parent company ..........................................................................................................	9,746	10,284	5,920
Removal of own credit spread net of tax ...............................................	202	13	907
Debit valuation adjustment ...................................................................	97

Net dividends including foreseeable net dividends⁴ .........................................	(2,329)	(4,780)	(2,207)
Dividends net of scrip recognised under Basel 2.5 ......................................		(4,780)	(2,207)
Update for fourth interim dividend scrip take-up in excess of plan ............	1,108
First interim dividend net of scrip .............................................................	(1,766)
Second interim dividend ............................................................................	(2,053)
Add back: planned scrip take-up ................................................................	382

Decrease in goodwill and intangible assets deducted .......................................	147	739	(204)
Ordinary shares issued ...................................................................................	14	169	128
Foreign currency translation differences .......................................................	720	(4,387)	3,093
Other, including regulatory adjustments ........................................................	240	63	524

Closing common equity/core tier 1 capital ............................................	140,070	140,890	149,051

Opening additional/other tier 1 capital .........................................................	14,408	12,259	9,252
Hybrid capital securities including redemptions .........................................	(500)	(1,478)	327
Unconsolidated investments .....................................................................	1	(1,519)	(485)
Other, including regulatory adjustments ....................................................	(96)	(10)	10

Closing tier 1 capital ................................................................................	153,883	150,142	158,155

Opening other tier 2 capital .........................................................................	35,538	29,758	33,308
Issued tier 2 capital securities net of redemptions ......................................	3,450	(457)	2,066
Unconsolidated investments .....................................................................	2	6,932	(485)
Other, including regulatory adjustments ....................................................	(39)	(2,925)	965

Closing total regulatory capital ..............................................................	192,834	183,450	194,009

For footnote, see page 192.

We complied with the PRA's regulatory capital adequacy requirements throughout 2013 and the first half of 2014. Internal capital generation contributed US$7.7bn to common equity tier 1 capital, being profits attributable to shareholders of the parent company after regulatory adjustment for own credit spread and net of dividends. The second interim dividend is net of planned scrip. We also benefited from a higher fourth interim dividend scrip take-up in excess of plan.

Capital structure

Composition of regulatory capital

	CRD IV Year 1 transition		Basel 2.5
	At 30 June 2014 .............. US$m	Estimated at 31 December 2013 ............... US$m	At 31 December 2013 US$m	At 30 June 2013 US$m
		Estimated at 31 December 2013 ............... US$m
Tier 1 capital
Shareholders' equity ...................................................	173,453	164,057	173,449	165,816
Shareholders' equity per balance sheet⁵ ..................	190,281	181,871	181,871	174,070
Foreseeable interim dividend⁴ .................................	(1,671)	(3,005)
Preference share premium ......................................	(1,405)	(1,405)	(1,405)	(1,405)
Other equity instruments ........................................	(5,851)	(5,851)	(5,851)	(5,851)
Deconsolidation of special purpose entities⁶ ...........	(686)	(1,166)	(1,166)	(998)
Deconsolidation of insurance entities .....................	(7,215)	(6,387)

Non-controlling interests ...........................................	3,792	3,644	4,955	4,754
Non-controlling interests per balance sheet ............	8,441	8,588	8,588	8,291
Preference share non-controlling interests .............	(2,153)	(2,388)	(2,388)	(2,395)
Non-controlling interests transferred to tier 2 capital ....................................................................	(487)	(488)	(488)	(490)
Non-controlling interests in deconsolidated subsidiaries .............................................................	(824)	(757)	(757)	(652)
Surplus non-controlling interest disallowed in CET1 ...............................................................................	(1,185)	(1,311)

Regulatory adjustments to the accounting basis ..........	(2,559)	(2,230)	480	178
Unrealised (gains)/losses in available-for-sale debt and equities⁷ ...........................................................	(141)		1,121	1,071
Own credit spread⁸ .................................................	1,314	1,112	1,037	137
Debit valuation adjustment .....................................	(354)	(451)
Defined benefit pension fund adjustment⁹ ...............	(2,301)	(1,731)	(518)	70
Reserves arising from revaluation of property ........	(1,346)	(1,281)	(1,281)	(1,284)
Cash flow hedging reserve ......................................	269	121	121	184

Deductions .................................................................	(34,616)	(34,238)	(29,833)	(29,858)
Goodwill and intangible assets .................................	(24,752)	(24,899)	(25,198)	(24,994)
Deferred tax assets that rely on future profitability (excludes those arising from temporary differences) ........................................................	(945)	(680)
Additional valuation adjustment (referred to as PVA) .....................................................................	(1,688)	(2,006)
Investments in own shares through the holding of composite products of which HSBC is a component (exchange traded funds, derivatives and index stock) ...........	(904)	(677)
50% of securitisation positions ..............................			(1,684)	(1,722)
50% of tax credit adjustment for expected losses ...			151	134
Excess of expected losses over impairment allowances ..............................................................	(6,327)	(5,976)	(3,102)	(3,276)


Common equity/core tier 1 capital ......................	140,070	131,233	149,051	140,890

Additional tier 1 capital
Other tier 1 capital before deductions ........................	13,977	14,573	16,110	15,790
Preference share premium ......................................	1,160	1,160	1,405	1,405
Preference share non-controlling interests .............	1,955	1,955	2,388	2,395
Allowable non-controlling interest in AT1 .............	635	731
Hybrid capital securities .........................................	10,227	10,727	12,317	11,990

Deductions .................................................................	(164)	(165)	(7,006)	(6,538)
Unconsolidated investments¹⁰ ................................	(164)	(165)	(7,157)	(6,672)
50% of tax credit adjustment for expected losses ...			151	134


Tier 1 capital ...........................................................	153,883	145,641	158,155	150,142

	CRD IV Year 1 transition		Basel 2.5
	At 30 June 2014 .............. US$m	Estimated at 31 December 2013 ............... US$m	At 31 December 2013 US$m	At 30 June 2013 US$m
		Estimated at 31 December 2013 ............... US$m
Tier 2 capital
Total qualifying tier 2 capital before deductions .............	39,197	35,786	47,812	45,009
Reserves arising from revaluation of property and unrealised gains in available-for-sale equities ....................................			2,755	2,567
Collective impairment allowances ..............................			2,616	2,799
Allowable non-controlling interest in tier 2 ................	47	86
Perpetual subordinated debt ........................................	2,218	2,218	2,777	2,777
Term subordinated debt ..............................................	36,692	33,242	39,364	36,566
Non-controlling interests in tier 2 capital ...................	240	240	300	300

Total deductions other than from tier 1 capital ..............	(246)	(248)	(11,958)	(11,701)
Unconsolidated investments¹⁰ ....................................	(246)	(248)	(7,157)	(6,672)
50% of securitisation positions ...................................			(1,684)	(1,722)
50% of excess of expected losses over impairment allowances ..............................................................			(3,102)	(3,276)
Other deductions ........................................................			(15)	(31)


Total regulatory capital ..............................................	192,834	181,179	194,009	183,450

For footnotes, see page 192.

Reconciliation of regulatory capital from Year 1 transitional basis to an estimated CRD IV end point basis

	At 30 June	Estimated at 31 December
	2014	2013
	US$m	US$m

Common equity tier 1 capital on a year 1 transitional basis ..............................................	140,070	131,233
Unrealised gains arising from revaluation of property ...............................................................	1,346	1,281
Unrealised gains in available for sale reserves ............................................................................	141	-

Common equity tier 1 capital end point basis ......................................................................	141,557	132,514

Additional tier 1 capital on a year 1 transitional basis .......................................................	13,813	14,408
Grandfathered instruments: Preference share premium ........................................................................................................	(1,160)	(1,160)
Preference share non-controlling interests ...............................................................................	(1,955)	(1,955)
Hybrid capital securities ............................................................................................................	(10,227)	(10,727)
Transitional provisions:
Allowable non-controlling interest in AT1 ...............................................................................	(231)	(366)
Unconsolidated investments .....................................................................................................	164	165

Additional tier 1 capital end point basis ................................................................................	404	365

Tier 2 capital on a year 1 transitional basis ..........................................................................	38,951	35,538
Grandfathered instruments:
Perpetual subordinated debt ......................................................................................................	(2,218)	(2,218)
Term subordinated debt ............................................................................................................	(21,513)	(21,513)
Transitional provisions:
Non-controlling interest in tier 2 capital ..................................................................................	(240)	(240)
Allowable non-controlling interest in tier 2 ..............................................................................	190	345
Unconsolidated investments .....................................................................................................	(164)	(165)

Tier 2 capital end point basis ..................................................................................................	15,006	11,747

The capital position presented on a CRD IV Year 1 transitional basis follows the CRD IV legislation as implemented in the UK via the PRA's final rules in the Policy Statement ('PS 7/13') issued in December 2013.

The effects of draft EBA standards are not generally captured in our numbers. These could have additional effects on our capital position and RWAs.

Whilst CRD IV allows for the majority of regulatory adjustments and deductions from CET1 to be implemented on a gradual basis from 1 January 2014 to 1 January 2018, the PRA has largely decided not to make use of these transitional provisions. This results in a cost to our transitional CET1 capital and ratio, corresponding to the treatment of unrealised gains on investment property and available-for-sale securities, which are only capable of being recognised in CET1 capital from 1 January 2015.

For tier 1 and tier 2 capital, the PRA followed the transitional provisions timing as set out in CRD IV to apply the necessary regulatory adjustments and deductions. The effect of these adjustments will be phased in at 20% per annum from 1 January 2014 to 1 January 2018.

Furthermore, non-CRD IV compliant additional tier 1 and tier 2 instruments benefit from a grandfathering period. This progressively reduces the eligible amount by 10% annually, following an initial 20% on 1 January 2014, until they are fully phased out by 1 January 2022.

Under CRD IV, as implemented in the UK, banks are required to meet a minimum CET1 ratio of 4.0% of RWAs (increasing to 4.5% from 1 January 2015), a minimum tier 1 ratio of 5.5% of RWAs (increasing to 6% from 1 January 2015) and a total capital ratio of 8% of RWAs. Going forward, as the grandfathering provisions fall away, we intend to meet these minima in an economically efficient manner by issuing non-equity capital as necessary. At 30 June 2014, the Group had US$15.2bn of CRD IV compliant non-equity capital instruments and US$37.1bn of non-equity capital instruments qualifying as eligible capital under CRD IV by virtue of application of the grandfathering provisions, after applying the 20% reduction outlined above.

The net dividends for the period of US$2.3bn include US$1.7bn to reflect our prospective second interim dividend declared, net of projected scrip dividend, which will be paid in October 2014. The remaining US$0.6bn include our first quarter interim dividend paid, net of scrip dividend, partially offset by a positive adjustment to the scrip take-up related to the fourth interim dividend of 2013.

Capital and RWA movements by major driver - CRD IV end point basis

	Common equity tier 1
	capital	RWAs
	US$bn	US$bn
CRD IV end point basis at 1 January 2014 ...........	132.5	1,214.9
Contribution to CET1 capital from profit ......	10.0	-
Net dividends including foreseeable net dividends⁵ ...................	(2.3)	-
Implementation of PRA LGD floors .................	(0.2)	34.4
Corporate lending growth ....................................	-	24.7
Legacy portfolio ............	-	(20.1)
Other .............................	1.6	(5.3)
...
CRD IV end point basis at 30 June 2014 ..............	141.6	1,248.6

Leverage ratio

For a detailed basis of preparation of the leverage ratio, see the Appendix to Capital, page 193.

In January 2014, the Basel Committee published its finalised leverage ratio framework, along with the public disclosure requirements applicable from 1 January 2015. This is currently in the process of being transposed into European law.

Under CRD IV, the legislative proposals and final calibration of the leverage ratio are expected to be determined following a review of the revised Basel proposals and the basis of the EBA's assessment of the impact and effectiveness of the leverage ratio during a monitoring period, between 1 January 2014 and 30 June 2016.

In May 2014, the PRA issued a letter setting out the approach to be taken for calculating the leverage ratio for disclosure in Interim Reports. This confirmed that the basis of calculation of the leverage ratio has changed from previous disclosures. While the numerator continues to be calculated using the final CRD IV end point tier 1 capital definition, the exposure measure is now calculated based on the January 2014 Basel III text (rather than the December 2010 Basel III text). The main differences between the two approaches are set out in our basis of preparation.

It should be noted the revised PRA-prescribed basis for disclosing the leverage ratio is not aligned with CRD IV. However, CRD IV is anticipated to align to Basel during 2014.

Estimated leverage ratio

	PRA- prescribed basis at
	30 June
	2014
	US$bn

Total assets per financial balance sheet .............................................................................................................	2,754

Deconsolidation of insurance/other entities .......................................................................................................	(107)
Consolidation of banking associates ...................................................................................................................	186

Total assets per regulatory balance sheet ...........................................................................................................	2,833
Adjustment to reverse netting of loans and deposits allowable under IFRS ..........................................................	98

Reversal of accounting values ........................................................................................................................	(498)
Derivatives ................................................................................................................................................	(270)
Repurchase agreement and securities finance ..............................................................................................	(228)

Derivatives ....................................................................................................................................................	199
Mark-to-market value ...............................................................................................................................	60
Deductions of receivables assets for cash variation margin..........................................................................	(55)
Add-on amounts for potential future exposure ...........................................................................................	166
Exposure amount resulting from the additional treatment for written credit derivatives .............................	28

Repurchase agreement and securities finance ..................................................................................................	237
Gross securities financing transactions assets ..................................................................................................	314
Netted amounts of cash payables and cash receivables of gross securities financing transactions assets ...........	(86)
Measurement of counterparty risk .................................................................................................................	9

Addition of off balance sheet commitments and guarantees:	445
Guarantees and contingent liabilities ..............................................................................................................	80
Commitments ................................................................................................................................................	356
Other .............................................................................................................................................................	9

Exclusion of items already deducted from the capital measure ...........................................................................	(37)

Exposure measure after regulatory adjustments .......................................................................................	3,277

Tier 1 capital under CRD IV (end point) ............................................................................................................	142

Estimated leverage ratio (end point) ...........................................................................................................	4.3%

Regulatory capital buffers

CRD IV establishes a number of capital buffers, to be met by CET1 capital, broadly aligned with the Basel III framework. CRD IV contemplates that these will be phased in from 1 January 2016, subject to national discretion. Restrictions on distributions apply where a bank fails to meet these buffers.

In April 2014, HM Treasury published the statutory instrument 'Capital Requirements (Capital Buffers and Macro-Prudential Measures) Regulations 2014' transposing into UK legislation the main provisions in CRD IV related to capital buffers, with the exception of the 'Systemic Risk Buffer', where HM Treasury is yet to designate the authority responsible for its application.

The PRA is the designated authority for the Global Systemically Important Institutions ('G‑SIIs') buffer, the Other Systemically Important Institutions ('O-SIIs') buffer and the Capital Conservation Buffer ('CCB'). In April 2014, they published rules and supervisory statements implementing the main
CRD IV provisions in relation to these buffers. The Bank of England is the designated authority for the countercyclical capital buffer ('CCyB') and macro prudential measures.

G-SII buffer

The G-SII buffer (which is the EU implementation of the Basel 'Global Systemically Important Banks' ('G-SIB') buffer) is to be met with CET1 capital and will be phased in from 1 January 2016. The buffer rate has not yet been formally set and will depend on the final draft EBA Regulatory Technical Standard, on the implementation of the methodology within the EU, being finalised and adopted.

In 2013, the Basel Committee issued the 'Global systemically important banks: updated assessment methodology and the higher loss absorbency requirement'. Based on this, the Financial Stability Board ('FSB') and the Basel Committee updated the list of G-SIBs, using end-2012 data. The add-on of 2.5% previously assigned to HSBC was left unchanged, but this rate will be subject to PRA confirmation later in 2014, after the assessment using end-2013 data has been carried out.

Following direction from the PRA to UK banks in their Supervisory Statement issued in April 2014, and in accordance with the EBA final draft Implementing Technical Standard and guidelines published in June 2014, we disclosed in July 2014 the EBA template showing the values used for the identification and scoring process which underpins our G-SIB designation. The template can be found on our website using the following link http://www.hsbc.com/investor-relations/financial-and-regulatory-reports.

Capital conservation buffer

The CCB was designed to ensure banks build up capital outside periods of stress that can be drawn down when losses are incurred and is set at 2.5% of RWAs. The PRA will phase-in this buffer from 1 January 2016 to 1 January 2019.

Countercyclical and other macro-prudential buffers

CRD IV contemplates a cyclical buffer in line with Basel III, in the form of an institution-specific CCyB, to protect against future losses where unsustainable levels of leverage, debt or credit growth pose a systemic threat. In addition to the buffers as defined under Basel III, CRD IV contemplates the application of increased requirements to address macro-prudential or systemic risk, including the setting of macro-prudential measures such as increasing capital requirements for specific sectors of the economy.

The FPC is responsible for related policy decisions, including setting the CCyB rate and the use of direction powers over sectoral capital requirements ('SCRs'). The UK legislation enabled use of the CCyB and SCR tools from 1 May 2014.Application of buffer rates set by regulatory authorities outside the UK before 1 January 2016 requires recognition and confirmation by the FPC. Beyond this date reciprocity mechanisms will apply.

In January 2014, the FPC issued a policy statement on its powers to supplement capital requirements, through the use of the CCyB and the SCR tools. The CCyB allows the FPC to raise capital requirements above the micro-prudential level for all exposures to borrowers in the UK. The SCR is a more targeted tool which allows the FPC to increase capital requirements above minimum regulatory standards for exposures to three broad sectors judged to pose a risk to the stability of the financial system as a whole: residential and commercial property; and other parts of the financial sector, potentially on a global basis.

In June 2014, the FPC set the CCyB rate for UK exposures at 0% but later in the year will consider its approach for recognition of CCyB rates in other countries. Should a CCyB be required, it is expected to be set in the range of 0‑2.5% of relevant credit exposures RWAs, although it is uncapped. The institution-specific CCyB rate for the Group will be based on the weighted average of the CCyB rates that apply in the jurisdictions where relevant credit exposures are located. The SCR tool is not currently deployed.

In addition to the measures above, CRD IV sets out a systemic risk buffer ('SRB') for the financial sector as a whole, or one or more sub-sectors, to be deployed as necessary by each EU member state with a view to mitigate structural macro-prudential risk. It is expected that, if such a risk was found to be prevalent, the SRB would be set at a minimum of 1% based on the exposures to which it would apply. This is not restricted to exposures within the member state itself and to the extent it would apply at a global level, it is expected that the higher of the G‑SII and the SRB would apply. This buffer is yet to be transposed into UK legislation.

Restrictions on capital distributions apply if the bank's CET1 capital falls below the level of its combined buffer, defined as the total of the CCB, the CCyB, the G-SII and the SRB (as these become applicable).

Pillar 2 and the 'PRA buffer'

To implement the CRD IV capital buffers in the UK, the PRA issued an initial consultation in 2013, proposing changes to the Pillar 2 framework and explaining its interaction with the buffers. Under the Pillar 2 framework, banks are already required to hold capital in respect of the internal capital adequacy assessment and supervisory review which leads to a final determination by the PRA of individual capital guidance under Pillar 2A. This is currently met by total capital, and in accordance with PS 7/13, is now proposed to be met 56% by CET1 from 1 January 2015.

The PRA further proposed to introduce a PRA buffer, to replace the current capital planning buffer ('CPB') (known as Pillar 2B), also to be held in the form of CET1 capital. The PRA buffer is intended to be calculated independently and then compared with the extent to which other CRD IV buffers may already cover the same risks. Depending upon the business undertaken by an individual firm, the PRA has stated its expectation that the capital conservation buffer and relevant systemic buffers should serve a similar purpose to the PRA buffer and therefore be deducted from it.

The PRA is expected to consult on their revised Pillar 2 framework later in 2014 and this will include the transition to the PRA buffer.

Until outstanding consultations are published and guidance issued, there remains uncertainty as to the interaction between these buffers, the exact buffer rate requirements and the ultimate capital impact.

For a high-level representation of the proposed buffers under the new regime on a fully loaded basis, see figure below.

Level of CET1 capital requirements

Given the developments outlined above, it remains uncertain what HSBC's precise end point CET1 capital requirement will be. However, elements of the capital requirements that are known or quantified to date are as follows:

	%

Minimum CET1 (phased in up to 2015) ...	4.5
Pillar 2A - 56% CET1 .............................	0.9
Capital conservation buffer (phased in up to 2019) ...........................................	2.5
G-SIB buffer (to be phased in up to 2019) .	2.5

It should be noted that Pillar 2A guidance is a point in time assessment of the amount of capital the PRA considers that a bank should hold to meet the overall financial adequacy rule. It is therefore subject to change pending annual assessment and the supervisory review process. The Group's Pillar 2A guidance is currently 1.5% of RWA supported by total capital. In line with the PRA's proposed requirements, this is to be met with at least 56% CET1 from 1 January 2015, being 0.9% of RWA.

Regulatory stress testing

The Group is subject to supervisory stress testing in many jurisdictions. These supervisory requirements are increasing in frequency and in the granularity with which results are required. As such, stress testing represents a key focus for the Group.

In October 2013, the Bank of England published an initial discussion paper 'A framework for stress testing the UK banking system'. The framework replaces the current stress testing for the capital planning buffer with annual concurrent stress tests, the results of which are expected to inform the setting of the PRA buffer, the CCyB, sectoral capital requirements and other FPC recommendations to the PRA. Later in 2014, the PRA is expected to further consult on Pillar 2, the transition to the PRA buffer and the relationship between the PRA buffer and the stress testing exercise.

The Group is undertaking the Bank of England's 2014 concurrent stress test exercise. This programme includes common base and stress scenarios applied across major UK banks. The exercise is supported by a complementary programme of data provision to the Bank of England under its Firm Data Submission Framework. Simultaneously, the Group is participating in the EBA stress testing exercise.

Additionally, our subsidiaries in France and Malta are participating in the ECB's Asset Quality Review, undertaken as part of the ECB's comprehensive assessment, prior to inception of the Single Supervisory Mechanism. They will then be subject to the ECB's ongoing stress testing process.

Disclosures of the results of these exercises are planned for late 2014.

Additionally HNAH and HSBC Bank USA are subject to the Comprehensive Capital Analysis and Review ('CCAR') and Dodd-Frank Stress Testing programmes of the Federal Reserve and the Office of the Comptroller of the Currency. The results of the exercises were disclosed in March 2014 and are described in more detail on page 108.

RWA integrity

In March 2014 the FPC published that it was minded to recommend that firms report and disclose capital ratios using the standardised approach to credit risk as soon as practicable in 2015 following a Basel

review of the standardised approach to credit risk. The latter is yet to be published and its recommendations are unknown.

In May 2014, the EBA published a consultation on benchmarks of internal approaches for calculating own funds requirements for credit and market risk exposures (RWAs). This follows a series of benchmarking exercises run in 2013 to better understand the drivers of differences observed in RWAs across EU institutions. The future annual benchmarking exercise outlined in the consultation paper aims to improve the comparability of capital requirements calculated using internal modelled approaches and will be used by regulators to inform their policy decisions.

Other regulatory updates

In December 2013, the PRA issued its Supervisory Statement SS13/13 in relation to Market Risk. This requires firms to identify risks not adequately captured by models and to hold additional funds against those under its Risks not in VaR ('RNIV') framework. In assessing these risks, no offsetting or diversification will be allowed across risk factors.

In March 2014, the EBA published a final draft regulatory technical standard on prudent valuation. We await the adoption of the finalised standard by the European Commission later in 2014.

In June 2014, the EBA and Basel Committee each issued a consultation on Pillar 3 requirements. The EBA consultation addresses how institutions should apply considerations of materiality, confidentiality and proprietary information in relation to disclosure, as well as how they should assess the appropriate frequency of their disclosures. The Basel consultation proposes increased use of standardised templates to enhance comparability in banks' risk and capital disclosures, as well as a selective approach to increased frequency.

In June 2014, the PRA issued its consultation CP12/14. Two changes to the credit risk rules are being proposed. The first is a proposal that the PRA will not grant advanced internal ratings-based ('AIRB') approach permissions in relation to exposures to central governments, public sector entities, central banks and financial sector entities and instead require calculation under the foundation approach from June 2015. The second is a proposal to introduce stricter criteria for the application of a 50% risk weight to certain commercial real estate ('CRE') exposures located in non-EEA countries dependent upon loss rates prevalent in these jurisdictions over a representative period. We are carrying out a detailed review of the consultation.

Also, in July 2014, the FPC issued a consultation on the design of a leverage ratio framework for the UK. The consultation makes a range of proposals including that the leverage framework include a minimum leverage ratio, a leverage conservation buffer, a supplementary leverage ratio for a subset of firms such as ring-fenced banks and/or G-SIBs, and the ability for the leverage ratio to vary over time in a countercyclical manner. An infringement of these leverage buffers above the minimum leverage ratio would restrict distributions. It also considers that the minimum leverage ratio may need to be met predominantly with CET1. In addition, the leverage buffers are proposed to be met with CET1, in line with the quality of capital for the risk-weighted buffers. The FPC is of the preliminary view that it should be granted powers of direction over all components of the leverage ratio framework not determined under EU legislation and that these powers should apply as soon as practicable.

Structural banking reform

In December 2013, the UK's Financial Services (Banking Reform) Act 2013 received Royal Assent. It implements the recommendations of the ICB and of the Parliamentary Commission on Banking Standards, which inter alia establish a framework for 'ring-fencing' UK retail banking in separately incorporated banking entities ('ring-fenced banks') from trading activities, and sets out requirements for loss absorbency in the form of equity capital and loss absorbing debt. The PRA, subject to the approval of HM Treasury, is empowered to require banking groups to restructure their operations if it considers that the operation of the ring-fence in a group is proving to be ineffective. The exercise of these powers may lead to groups being required to split their retail and investment banking operations into separate corporate groups. In July 2014, final secondary legislation, in the form of the Financial Services and Markets Act 2000 (Excluded Activities and Prohibitions) Order 2014 and the Financial Services and Markets Act 2000 (Ring-Fenced Bodies and Core Activities) Order 2014 ('the orders') setting out further details were published. The orders include provisions detailing the requirement that the deposits of certain UK individuals and organisations be housed in ring-fenced banks. In addition, the orders place restrictions on the activities and geographical scope of ring-fenced banks. Regulatory rules from supervisory authorities are not yet available. The UK government intends to complete the legislative process by the end of this Parliament in May 2015 and to have reforms in place by 2019.

The UK Financial Services (Banking Reform) Act 2013 also creates a 'bail-in' mechanism as an additional resolution tool alongside existing options to transfer all or part of the bank to a private sector purchaser, to transfer parts of the bank to a new 'bridge' bank which is later sold or takes the bank into temporary public sector ownership. In a 'bail-in', shareholders and creditors in the bank have their investments written down in value or converted into new interests (such as new shares) without the bank being placed in liquidation. This allows the bank to continue to provide its core banking services without interruption and ensures that the solvency of the bank is addressed without taxpayer support, while also allowing the Bank of England to provide temporary funding to this newly solvent bank. Certain liabilities including deposits protected by the Financial Services Compensation Scheme are excluded from bail-in. It is intended that these bail-in provisions will be consistent with the EU Recovery and Resolution Directive once it comes into force.

In June 2014, the final text of the Banking Recovery and Resolution Directive was published in the EU's Official Journal. In July 2014, both HM Treasury and the PRA published consultation papers to transpose and implement the Directive requirements into UK law and rules. The finalised requirements are expected to be in place by 31 December 2014.

Eurozone

In February 2012, the European Commission appointed a High Level Expert Group under the Governor of the Bank of Finland, Erkki Liikanen, to consider potential structural changes in banks within the EU. The group recommended, inter alia, the ring-fencing of certain market-making and trading activities from the deposit-taking and retail payments activities of major banks and possible amendments to the use of bail-in instruments as a resolution tool, as well as a number of other comments.

In January 2014, following a consultation period, the European Commission published its own legislative proposals on the structural reform of the European banking sector which would prohibit proprietary trading in financial instruments and commodities, and enable supervisors to require trading activities such as market-making, complex derivatives and securitisation operations to be undertaken in a separate subsidiary from deposit taking activities.

The ring-fenced deposit taking entity would be subject to separation from the trading entity including capital and management structures, issuance of own debt and arms-length transactions between entities.

The proposals allow for derogation from these requirements for super-equivalent national regimes. On the current basis, it is understood that non-EEA subsidiaries of the Group which could be separately resolved without a threat to the financial stability of the EU would be excluded from the proposals.

The proposals will now be subject to discussion in the European Parliament and the Council and are not expected to be finalised in 2014. The implementation date for any separation under the final rules would depend upon the date on which the final legislation is agreed. The EU proposal contains a provision which would permit derogation by member states which have implemented their own structural reform legislation, subject to meeting certain conditions. This derogation could benefit the UK, which has passed the UK Financial Services (Banking Reform) Act 2013, and France and Germany, which have enacted structural reform. However, it is possible that the proposed derogation will not be enacted. The interaction between the EU proposals and the US Volker Rule has still to be clarified. The G20 has asked the FSB, in collaboration with the International Monetary Fund and the OECD, to assess the cross-border consistency and global financial stability implications of structural measures, to be completed by the end of 2014.

Footnotes to Capital

1 Operational risk RWAs, under the standardised approach, are calculated using an average of the last three years' revenues. For business disposals, the operational risk RWAs are not removed immediately on disposal, but diminish over a period of time. The RWAs for the CRS business represent the remaining operational risk RWAs for the business.

2 RWAs are non-additive across geographical regions due to market risk diversification effects within the Group.

3 From 1 January 2014, the geographical region 'Asia' replaced the geographical regions previously reported as 'Hong Kong' and 'Rest of Asia-Pacific' (see Note 23 on the Financial Statements for further details). Comparative data have been re-presented to reflect this change.

4 This includes dividends on ordinary shares, quarterly dividends on preference shares and coupons on capital securities, classified as equity.

5 Includes externally verified profits for the half-year to 30 June 2014.

6 Mainly comprises unrealised gains/losses in available-for-sale debt securities related to SPEs.

7 Unrealised gains/losses in available-for-sale securities are net of tax.

8 Includes own credit spread on trading liabilities.

9 Under Basel 2.5 rules, any defined benefit asset is derecognised and a defined benefit liability may be substituted with the additional funding that will be paid into the relevant schemes over the following five-year period.

10 Mainly comprise investments in insurance entities.

Appendix to Capital

Capital management and capital measurement and allocation

Capital management

Approach and policy

Our approach to capital management is driven by our strategic and organisational requirements, taking into account the regulatory, economic and commercial environment in which we operate. Pre-tax return on risk-weighted assets ('RoRWA') is an operational metric by which the global businesses are managed on a day-to-day basis. The metric combines return on equity and regulatory capital efficiency objectives. It is our objective to maintain a strong capital base to support the risks inherent in our business and invest in accordance with our six filters framework, exceeding both consolidated and local regulatory capital requirements at all times.

Our policy on capital management is underpinned by a capital management framework which enables us to manage our capital in a consistent manner. The framework, which is approved by the GMB annually, incorporates a number of different capital measures including market capitalisation, invested capital, economic capital and regulatory capital. In accordance with PRA regulations we set our capital ratio target on an end point CRD IV CET1 basis.

Capital measures

· market capitalisation is the stock market value of HSBC;

· invested capital is the equity capital invested in HSBC by our shareholders, adjusted for certain reserves and goodwill previously amortised or written off;

· economic capital is the internally calculated capital requirement which we deem necessary to support the risks to which we are exposed; and

· regulatory capital is the capital which we are required to hold in accordance with the rules established by the PRA for the consolidated Group and by our local regulators for individual Group companies.

Our assessment of capital adequacy is aligned to our assessment of risks, including: credit, market, operational, interest rate risk in the banking book, pension fund, insurance, structural foreign exchange risk and residual risks.

Stress testing

In addition to our internal stress tests, the Group is subject to supervisory stress testing in many jurisdictions. Supervisory requirements are increasing in frequency and in the granularity with which the results are required. These exercises include the programmes of the PRA, the Federal Reserve Board, the EBA, the ECB and the Hong Kong Monetary Authority, as well as stress tests undertaken in other jurisdictions. We take into account the results of all such regulatory stress testing when assessing our internal capital requirements.

Risks to capital

Outside the stress-testing framework, a list of top and emerging risks is regularly evaluated for their effect on our CET1 capital ratio. In addition, other risks may be identified which have the potential to affect our RWAs and/or capital position. These risks are also included in the evaluation of risks to capital. The downside or upside scenarios are assessed against our capital management objectives and mitigating actions are assigned as necessary. The responsibility for global capital allocation principles and decisions rests with the GMB. Through our internal governance processes, we seek to maintain discipline over our investment and capital allocation decisions and seek to ensure that returns on investment are adequate after taking into account capital costs. Our strategy is to allocate capital to businesses and entities on the basis of their ability to achieve established RoRWA objectives and their regulatory and economic capital requirements.

Risk-weighted asset targets

RWA targets for our global businesses are established in accordance with the Group's strategic direction and risk appetite, and approved through the Group's annual planning process. As these targets are deployed to lower levels of management, action plans for implementation are developed. These may include growth strategies; active portfolio management; restructuring; business and/or customer-level reviews; RWA efficiency and optimisation initiatives and risk-mitigation. Our capital management process is articulated in the annual Group capital plan which is approved by the Board.

Business performance against RWA targets is monitored through regular reporting to the Group Holdings ALCO. The management of capital deductions is also addressed in the RWA monitoring framework through additional notional charges for these items.

Analysis is undertaken in the RWA monitoring framework to identify the key drivers of movements in the position, such as book size and book quality. Particular attention is paid to identifying and segmenting items within the day-to-day control of the business and those items that are driven by changes in risk models or regulatory methodology.

Capital generation

HSBC Holdings is the primary provider of equity capital to its subsidiaries and also provides them with non-equity capital where necessary. These investments are substantially funded by HSBC Holdings' own capital issuance and profit retention. As part of its capital management process, HSBC Holdings seeks to maintain a prudent balance between the composition of its capital and its investment in subsidiaries.

Capital measurement and allocation

The PRA supervises HSBC on a consolidated basis and therefore receives information on the capital adequacy of, and sets capital requirements for, the Group as a whole. Individual banking subsidiaries are directly regulated by their local banking supervisors, who set and monitor their capital adequacy requirements. In 2013, we calculated capital at a Group level using the Basel II framework as amended for CRD III, commonly known as Basel 2.5, and also estimated capital on an end point CRD IV basis. From 1 January 2014, our capital at Group level is calculated under the CRD IV and supplemented by PRA rules to effect the transposition of directive requirements.

Our policy and practice in capital measurement and allocation at Group level is underpinned by the CRD IV rules. However, local regulators are at different stages of implementation and some local reporting is still on a Basel I basis, notably in the US where they are also parallel running on a Basel III basis. In most jurisdictions, non-banking financial subsidiaries are also subject to the supervision and capital requirements of local regulatory authorities.

The Basel III framework, similarly to Basel II, is structured around three 'pillars': minimum capital requirements, supervisory review process and market discipline. The CRD IV legislation implemented Basel III in the EU and, in the UK, the 'PRA rulebook CRR Firms Instrument 2013' transposed the various national discretions under the CRD IV legislation into UK law. The CRD IV and PRA legislation came into force on 1 January 2014.

Regulatory capital

For regulatory purposes, our capital base is divided into three main categories, namely Common Equity Tier 1, Additional Tier 1 and Tier 2, depending on the degree of permanency and loss absorbency exhibited.

· Common equity tier 1 capital is the highest quality form of capital, comprising shareholders' equity and related non-controlling interests (subject to limits). Under CRD IV various capital deductions and regulatory adjustments are made against these items which are treated differently for the purposes of capital adequacy - these include deductions for goodwill and intangible assets, deferred tax assets that rely on future profitability, negative amounts resulting from the calculation of expected loss amounts under IRB and defined benefit pension fund assets.

· Additional tier 1 capital comprises qualifying non-common equity capital instruments and related share premium; it also includes qualifying instruments issued by subsidiaries subject to certain limits. Holdings of additional tier 1 instruments of financial sector entities are deducted.

· Tier 2 capital comprises qualifying capital instruments and subordinated loans, related share premium and qualifying tier 2 capital instruments issued by subsidiaries subject to limits. Holdings of tier 2 capital of financial sector entities are deducted.

Pillar 1 capital requirements

Pillar 1 covers the capital resources requirements for credit risk, market risk and operational risk. Credit risk includes counterparty credit risk and securitisation requirements. These requirements are expressed in terms of RWAs.

Credit risk capital requirements

CRD IV applies three approaches of increasing sophistication to the calculation of Pillar 1 credit risk capital requirements. The most basic, the standardised approach, requires banks to use external credit ratings to determine the risk weightings applied to rated counterparties. Other counterparties are grouped into broad categories and standardised risk weightings are applied to these categories. The next level, the internal ratings-based ('IRB') foundation approach, allows banks to calculate their credit risk capital requirements on the basis of their internal assessment of a counterparty's probability of default ('PD'), but their estimates of exposure at default ('EAD') and loss given default ('LGD') are subject to standard supervisory parameters. Finally, the IRB advanced approach allows banks to use their own internal assessment in both determining PD and quantifying EAD and LGD.

The capital resources requirement, which is intended to cover unexpected losses, is derived from a formula specified in the regulatory rules which incorporates PD, LGD, EAD and other variables such as maturity and correlation. Expected losses under the IRB approaches are calculated by multiplying PD by EAD and LGD. Expected losses are deducted from capital to the extent that they exceed total accounting impairment allowances.

For credit risk we have adopted the IRB advanced approach for the majority of our portfolios, with the remainder on either IRB foundation or standardised approaches.

Under our CRD IV rollout plans, a number of our Group companies and portfolios are in transition to advanced IRB approaches. At the end of the first half of 2014, global models for sovereigns, banks, large corporates as well as portfolios in most of Europe, Asia and North America were on advanced IRB approaches. Others remain on the standardised or foundation approaches pending definition of local regulations or model approval, or under exemptions from IRB treatment.

· Counterparty credit risk

CCR arises for OTC derivatives and securities financing transactions. It is calculated in both the trading and non-trading books and is the risk that the counterparty to a transaction may default before completing the satisfactory settlement of the transaction. Three approaches to calculating CCR and determining exposure values are defined by CRD IV: standardised, mark-to-market and internal model method. These exposure values are used to determine capital requirements under one of the credit risk approaches: standardised, IRB foundation and IRB advanced.

We use the mark-to-market and internal model method approaches for CCR. Our longer-term aim is to migrate more positions from the mark-to-market to the internal model method approach.

In addition, CRD IV applies a capital requirement for CVA risk. Where we have both specific risk VaR approval and internal model method approval for a product, the CVA VaR approach has been used to calculate the CVA capital charge. Where we do not hold both approvals, the standardised approach has been applied.

· Securitisation

Securitisation positions are held in both the trading and non-trading books. For non-trading book securitisation positions, CRD IV specifies two methods for calculating credit risk requirements, the standardised and the IRB approaches. Both rely on the mapping of rating agency credit ratings to risk weights, which range from 7% to 1,250%.

Within the IRB approach, we use the ratings-based method for the majority of our non-trading book securitisation positions, and the internal assessment approach for unrated liquidity facilities and programme-wide enhancements for asset-backed securitisations.

The majority of securitisation positions in the trading book are treated for capital purposes as if they are held in the non-trading book under the standardised or IRB approaches. Other traded securitisation positions, known as correlation trading, are treated under an internal model approach approved by the PRA.

Market risk capital requirement

The market risk capital requirement is measured using internal market risk models where approved by the PRA, or the PRA's standard rules. Our internal market risk models comprise VaR, stressed VaR, incremental risk charge and the comprehensive risk measure.

Operational risk capital requirement

CRD IV includes a capital requirement for operational risk, again utilising three levels of sophistication. The capital required under the basic indicator approach is a simple percentage of gross revenues, whereas under the standardised approach it is one of three different percentages of total operating income less insurance premiums allocated to each of eight defined business lines. Both these approaches use an average of the last three financial years' revenues. Finally, the advanced measurement approach uses banks' own statistical analysis and modelling of operational risk data to determine capital requirements. We have adopted the standardised approach in determining our operational risk capital requirements.

Pillar 2 capital requirements

We conduct an internal capital adequacy assessment process ('ICAAP') to determine a forward looking assessment of our capital requirements given our business strategy, risk profile, risk appetite and capital plan. This process incorporates the Group's risk management processes and governance framework. A range of stress tests are applied to our base capital plan. These, coupled with our economic capital framework and other risk management practices, are used to assess our internal capital adequacy requirements.

The ICAAP is examined by the PRA as part of its supervisory review and evaluation process, which occurs periodically to enable the regulator to define the individual capital guidance or minimum capital requirements for HSBC and our capital planning buffer where required.

Pillar 3 disclosure requirements

Pillar 3 of the Basel regulatory framework is related to market discipline and aims to make firms more transparent by requiring them to publish, at least annually, wide-ranging information on their risks and capital, and how these are managed. Our Pillar 3 Disclosures 2013 are published on our website, www.hsbc.com, under Investor Relations.

RWA movement by key driver - basis of preparation and supporting notes

Credit risk drivers - definitions and quantification

The causal analysis of RWA movements splits the total movement in IRB RWAs into six drivers, described below. The first four relate to specific, identifiable and measurable changes. The remaining two, book size and book quality, are derived after accounting for movements in the first four specific drivers.

1. Foreign exchange movements

This is the movement in RWAs as a result of changes in the exchange rate between the functional currency of the HSBC company owning each portfolio and US dollars, being our presentation currency for consolidated reporting. We hedge structural foreign exchange exposures only in limited circumstances. Our structural foreign exchange exposures are managed with the primary objective of ensuring, where practical, that our consolidated capital ratios and the capital ratios of individual banking subsidiaries are largely protected from the effect of changes in exchange rates. This is usually achieved by ensuring that, for each subsidiary bank, the ratio of structural exposures in a given currency to risk-weighted assets denominated in that currency is broadly equal to the capital ratio of the subsidiary in question.

2. Acquisitions and disposals

This is the movement in RWAs as a result of the disposal or acquisition of business operations. This can be whole businesses or parts of a business. The movement in RWAs is quantified based on the credit risk exposures as at the end of the month preceding a disposal or following an acquisition.

3. Model updates

New/updated models

RWA movements arising from the implementation of new models and from changes to existing parameter models are allocated to this driver. This figure will also include changes which arise following review of modelling assumptions. Where a model recalibration reflects an update to more recent performance data, the resulting RWA changes are not assigned here, but instead reported under book quality.

RWA changes are estimated based on the impact assessments made in the testing phase prior to implementation. These values are used to simulate the impact of new or updated models on the portfolio at the point of implementation, assuming there were no major changes in the portfolio from the testing phase to implementation phase.

Portfolios moving onto IRB approach

Where a portfolio moves from the standardised approach to the IRB approach, the RWA movement by key driver statement shows the increase in IRB RWAs, but does not show the corresponding reduction in standardised approach RWAs as its scope is limited to IRB only.

The movement in RWAs is quantified at the date at which the IRB approach is applied, and not during the testing phase as with a new/updated model.

4. Methodology and policy

Internal regulatory updates

This captures the RWA impact resulting from changing the internal treatment of exposures. This may include, but is not limited to, a portfolio or a part of one moving from an existing IRB model onto a standardised model, identification of netting and credit risk mitigation.

External regulatory updates

This specifies the impact resulting from additional or changing regulatory requirements. This includes, but is not limited to, regulatory-prescribed changes to the RWA calculation. The movement in RWAs is quantified by comparing the RWAs calculated for that portfolio under the old and the new requirements.

5. Book size

RWA movements attributed to this driver are those we would expect to experience for the given movement in exposure, as measured by EAD adjusted for eligible cash collateral for businesses which are managed on a basis net of collateral, assuming a stable risk profile. These RWA movements arise in the normal course of business, such as growth in credit exposures or reduction in book size from run-offs and write-offs.

The RWA movement is quantified as follows:

· RWA and EAD changes captured in the four drivers above are excluded from the total movements to create an adjusted movement in EAD and RWA for the period.

· The average RWA to EAD percentage is calculated for the opening position and is applied to the adjusted movement in EAD. This results in an estimated book size RWA movement based on the assumption that the EAD to RWA percentage is constant throughout the period.

As the calculation relies on averaging, the output is dependent upon the degree of portfolio aggregation and the number of discrete time periods for which the calculation is undertaken. For each quarter of 2013 this calculation was performed for each HSBC company with an IRB portfolio by global businesses, split by the main Basel categories of credit exposures, as described in the table below:

Basel categories of IRB credit exposures within HSBC
Central governments and central banks	Corporate foundation IRB	Qualifying revolving retail exposures
Institutions	Other advanced IRB	Retail SME
Corporate advanced IRB	Retail mortgages	Other retail

The total of the results is shown in book size within the RWA movement by key driver table.

6. Book quality

This represents RWA movements resulting from changes in the underlying credit quality of customers. These are caused by changes to IRB risk parameters which arise from actions such as, but not limited to, model recalibration, change in counterparty external rating, or the influence of new lending on the average quality of the book. The change in RWAs attributable to book quality is calculated as the balance of RWA movements after taking account of all drivers described above. The RWA movement by key driver statement includes only movements which are calculated under the IRB approach. Certain classes of credit risk exposure are treated as capital deductions and therefore reductions are not shown in this statement. If the treatment of a credit risk exposure changes from RWA to capital deduction in the period, then only the reduction in RWAs would appear in the RWA movement by key driver tables. In this instance, a reduction in RWAs does not necessarily indicate an improvement in the capital position.

Counterparty risk drivers - definitions and quantification

The RWA movement by key driver for counterparty credit risk calculates the credit risk drivers 5 and 6 at a more granular level, by using transaction level details provided by regional sites. 'Foreign exchange movement' is not a reported layer for counterparty risk drivers, as there is cross currency netting across the portfolio.

Market risk drivers - definitions and quantification

The RWA movement by key driver for market risk combines the credit risk drivers 5 and 6 into a single driver called 'Movements in risk levels'.

Leverage ratio: basis of preparation

The numerator, capital measure, is calculated using the 'end point' definition of tier 1 capital applicable from 1 January 2022, which is set out in the final CRD IV rules. This is supplemented with the EBA's Own Funds' RTS to the extent that these have been published in the Official Journal of the European Commission as at the reporting date, as well as making reference to the PRA Rulebook where appropriate. The denominator, exposure measure, is calculated according to the January 2014 Basel III leverage ratio framework, the instructions provided in March 2014 for the Basel III Quantitative Impact Study, its related Frequently Asked Questions and the PRA's guidance on the methodologies used there. This revised Basel III leverage ratio framework follows the same scope of regulatory consolidation as is used for the risk-based capital framework, which differs to the 2010 Basel text that required banks to include items using their accounting balance sheet. The exposure measure generally follows the accounting value, adjusted as follows:

· on-balance sheet, non-derivative exposures are included in the exposure measure net of specific provisions or accounting valuation adjustments (e.g. accounting credit valuation adjustments);

· netting of loans and deposits is not allowed;

· the scope of netting for derivatives is extended to all scenarios where we would recognise a netting agreement for regulatory purposes;

· compared with the Basel 2010 text, the Basel 2014 text appears to permit the offsetting of cash variation margin against derivative assets and liabilities in circumstances where we would recognise offset for regulatory purposes. This is subject to certain additional conditions including the requirement that the margin be exchanged daily and be in the same currency as the currency of settlement of the derivative contract. For these purposes we have considered this to include any currency that can be used to make payments under the derivative contract, the governing qualifying master netting agreement, or its associated credit support annex;

· the approach to netting securities financing transactions ('SFT's) is aligned to that permitted under IFRS, though for leverage purposes there is an additional add-on to the extent that an SFT is under collateralised. This represents a stricter requirement compared with the Basel 2010 text;

· the inclusion of potential future exposure add-ons for both OTC and exchange-traded derivatives;

· the notional amount of written credit derivatives is included in the exposure measure, subject to offsets for purchased protection. This represents a stricter requirement compared with the Basel 2010 text;

· off-balance sheet items are converted into credit exposure equivalents through the use of credit conversion factors ('CCF's). The Basel 2010 text required that off-balance sheet items are included in full except for commitments that are unconditionally cancellable at any time by HSBC without prior notice, where only 10% of the exposures are included. This has changed under the Basel 2014 text which now includes a CCF of 20% and 50% for certain exposures; and

· the exclusion of items deducted from the end point tier 1 capital such as goodwill and intangible assets.

This information is provided by RNS

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END

IR QKQDBABKDPFD

RNS metadata

Title: Interim Report - 21 of 28
Time: 17:35:01
Date: 15 Aug 2014
Category: Results
ID: 2084P