Section 2 : Structure of the UK financial system

Chart 2.1 Major UK banks’ aggregate balance sheet at end-2006 Sources: Bank of England, FSA regulatory returns, published accounts and Bank calculations. (a)Includes borrowing from major UK banks. (b)Includes (among other items) loans to UK-resident banks and other financial corporations and holdings of UK government debt. (c)Includes Tier 2 capital, short positions, insurance liabilities and derivative contracts with negative marked-to-market value. (d)Assets are not risk weighted. As a percentage of risk-weighted assets, Tier 1 capital is 8%.

Chart 2.2 Major UK banks’ exposures as a share of total assets at end-2006 Sources: Bank of England, FSA regulatory returns, published accounts and Bank calculations. (a)Includes (among other items) loans to UK-resident banks and other financial corporations and holdings of UK government debt.

Chart 2.3 Major UK banks’ aggregate trading income (a) Sources:Bank of England, published accounts and Bank calculations. (a) Data included only for those major banks that report trading income and Value-at-Risk. (b) Aggregate Value-at-Risk standardised to sterling, 99% confidence interval and a ten-day holding period.

Chart 2.4 Major UK banks’ participation as lead arrangers in global syndicated lending (a)(b) Sources: Dealogic and Bank calculations. (a)Excludes amendments and unsigned loans. (b)When the proportions provided by each syndicate member are unknown, loan amounts have been split equally among participating banks.

Chart 2.5 Annual growth rate of major UK banks’ lending to UK non-financial companies (a) Source: Bank of England. (a) Data exclude Nationwide. (b) Includes lending to real estate companies.

Chart 2.6 Major UK banks’ annual write-off rates (a) Sources: Bank of England, FSA regulatory returns and Bank calculations. (a) Calculated quarterly as write-offs over previous year divided by average stock of lending. (b) Dashed line shows the rate excluding a one-off write-off of £0.7 billion in 2005 Q4, which distorted the series. (c) Data exclude Nationwide.

Chart 2.7 Annual growth in major UK banks’ lending to UK households Sources: Bank of England and FSA regulatory returns.

Chart 2.8 Major UK banks’ customer funding gap (a) Sources: Dealogic, published accounts and Bank calculations. (a)Data exclude Nationwide. (b)Customer funding gap less securitised debt. Where not available, stocks of securitisations are estimated from data on flows of issuance. (c)Customer funding gap less wholesale funding with an outstanding maturity of more than three months (solid line) or with an outstanding maturity of more than one year (dashed line).

Chart 2.9 Major UK banks’ ‘large exposures’ by type of counterparty (a) Sources: FSA regulatory returns and Bank calculations. (a) Based on exposures that exceed 10% of eligible capital at the end of the reporting period.

Chart 2.10 Incidence of common ‘large exposure’ counterparts during 2006 Q4 (a) Sources: FSA regulatory returns and Bank calculations. (a) Based on exposures that exceed 10% of eligible capital during the reporting period.

Chart 2.11 Revenue and profit growth at LCFIs’ corporate and investment banking units at end-2006 Sources: Published accounts and Bank calculations.

Chart 2.12 LCFIs’ total assets Sources: SEC filings, published accounts and Bank calculations. (a) Other includes (among other items) receivables, investments, goodwill and property

Chart 2.13 LBO lending by LCFIs (a)(b) Sources: Dealogic and Bank calculations. (a)Excludes amended and unsigned loans. (b)Where the actual proportions provided by each syndicate member are unknown, loan amounts have been split equally among participating banks.

Chart 2.14 LCFIs’ Value-at-Risk (a)(b) Sources: Bank of England, published accounts and Bank calculations. (a)Standardised to US dollar 99% confidence interval and a ten-day holding period. (b)Data for selected LCFIs. Where unavailable, quarterly data are inferred from annual or semi-annual data. (c)Includes (among other items) commodities and foreign exchange.

Chart 2.15 Major UK banks’ and LCFIs’ credit default swap premia (a) Sources: Bloomberg, Markit Group Limited, published accounts and Bank calculations. (a) Asset-weighted average five-year premia. (b) July 2006 Report.

Chart 2.16 LCFIs’ issuance of RMBS backed by sub-prime lending (a) Sources: Dealogic and Bank calculations. (a)Data include residential mortgage-backed securities (RMBS) backed by sub-prime and non first lien mortgages.

Chart 2.17 Investor shares of US and European leveraged loan markets (a) Sources: Standard & Poor’s Leverage Commentary and Data, and Bank calculations. (a) Shares weighted by European and US leveraged loan market volumes.

Chart 2.18 Outstanding global amounts of credit protection bought by institution (a) Sources: BBA and Bank calculations. (a) Amounts netted across long and short positions.

Chart 2.19 Net capital flows into hedge funds Source: Lipper (a Reuters company).

Chart 2.20 CREST system availability for settlement Source: CRESTCo.

Section 2 | Box 4

Significant news6 July: Salomon Bros. arbitrage desk disbanded 17 August: Russian ruble devaluation 23 September: LTCM recapitalisation 15 October: Inter-meeting US Fed rate cut Asset class6 July to 14 Aug. 17 Aug. to 22 Sept. 23 Sept. to 15 Oct. 16 Oct. to 31 Dec. Swap spreads Equity prices Government bond yields Average volatility (outweighted) Table average volatility indices (a)(b) Sources: BIS and Bank calculations. (a) Volatility over period 1 January to 3 July 1998 = 100. (b) The volatility for each asset class is calculated as the simple average of the volatilities of a range of assets denominated in different currencies and, where relevant, maturities.

Chart A Baseline versus stressed VaRs (a) Sources: Bloomberg, Markit Group Limited, published accounts and Bank calculations. (a) Asset-weighted average five-year premia. (b) July 2006 Report.

Section 2 | Box 5

Chart A Hedge fund returns versus returns on selected assets (a) Sources: Bloomberg, CSFB/Tremont, Goldman Sachs, JPMorgan Chase & Co., Standard & Poor’s, Thomson Datastream and Bank calculations. (a) Monthly indices rebased to 100 in January (b) Spread measured as yield to maturity over US Treasuries.

Chart B Number of hedge funds and assets under management (a) Source: Hennessee Group LLC. (a) Data are reported as of January each year.

Chart C Source of hedge fund capital by share of assets under management Source: Hennessee Group LLC.