Section 2: Structure of the financial system

Chart 2.1 Major UK banks’ aggregate balance sheet as at end-June 2007(a)

Sources: Bank of England, FSA regulatory returns, published accounts and Bank calculations.

(a) Nationwide data are as at end-2006.(b) Includes borrowing from major UK banks.(c) Includes (among other items) loans to UK-resident banks and other financial corporations and holdings of UK government debt.(d) Includes Tier 2 capital, short positions, insurance liabilities and derivative contracts with negative marked-to-market value.

Chart 2.2 Major UK banks’ exposures as a share of total assets as at end-June 2007(a)

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 Sterling intraday liquidity buffers(a)(b)

Source: Bank of England.

(a) Data are for the five major UK banks that are members of CHAPS Sterling.(b) 30-day moving average.

Chart 2.4 Major UK banks’ customer funding gap(a)

Sources: Dealogic, published accounts and Bank calculations.

(a) Data as at 2007 H1. Excludes Nationwide as interim data unavailable.(b) Customer funding gap less securitised debt. Where not available, stocks of securitisations are estimated from issuance data.(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 2.5 Major UK banks’ wholesale funding by maturity and securitisation end-2006

Sources: Dealogic, published accounts and Bank calculations.

(a) Where not available, stocks of securitisations are estimated from data on flows of issuance.

Section 2 : Box 3

.

Chart A Major UK banks’ participation as lead arrangers in global leveraged lending(a)(b)

Sources: Dealogic and Bank calculations.

(a) Excludes amended and unsigned loans.(b) When the proportions provided by each syndicate member are unknown, loan amounts have been split equally among participating banks.

Chart B Major UK banks’ issuance of residential mortgage-backed securities and growth in mortgage lending

Sources: Bank of England, Dealogic and FSA regulatory returns Bank calculations.

Table 1 Estimated capital and funding impact on major UK banks of unanticipated balance sheet expansion(a)

Sources: Bank of England, Dealogic, Fitch Ratings Ltd and Bank calculations.

(a) Assumes a scenario under which banks cannot distribute any assets for the remainder of 2007 and are required to provide full liquidity support to all off balance sheet vehicles.(b) As a percentage of major UK banks’ funding obtained from interbank deposits and debt securities in issue.(c) Assumes LBO pipeline, ABCP liquidity support lines subject to 100% risk-weighting, mortgages not securitised subject to 50% risk-weighting. Based on capital position at end-

2006.(d) Asset-backed commercial paper.(e) Assumes value of mortgage-backed security (MBS) (defined as RMBS and CMBS) that cannot be issued by major UK banks is equal to average value of MBS issued by these

institutions in 2006 Q3 and 2006 Q4.

Change in Tier 1 ratio (per cent)

Extra

Funding

(per cent) (b)

Extra risk-weighted assets

(£ billions)Current Prospective (c)

Total 12.0 147.4 8.2 7.6

Of which:

ABCP(d)-funded vehicles

7.7 109.1 - (-0.40pp)

Leveraged buyouts 1.1 15.5 - (0.06pp)

MBS(e) 3.2 22.8 - (0.08pp)

Chart 2.6 Major UK banks’ credit default swap premia(a)

Sources: Fitch Ratings Ltd, Markit Group Ltd, Thomson Datastream, published accounts and Bank calculations.

(a) Asset-weighted average five-year premia.(b) Data include members of the major UK banks peer group with a Fitch Ratings long-term issuer rating below AA.(c) Data include members of the major UK banks peer group with a Fitch Ratings long-term issuer rating of AA or above.

Chart 2.7 UK corporate borrowing rates

Sources: Bank of England and BBA.

Chart 2.8 Annual growth in 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 2.9 Annual growth in major UK banks’ lending to UK households

Sources: Bank of England and FSA regulatory returns.

Chart 2.10 Effective mortgage spread

Sources: Bank of England and Bank calculations.

(a) Effective interest rate on the stock of outstanding mortgages relative to an appropriate funding rate. For floating-rate mortgages, that is assumed to be Bank Rate. For fixed-rate products, swap rates of similar maturities are used (averaged over the relevant horizon and lagged one month).

(b) The Herfindahl index is a measure of concentration in an industry or sector. It is calculated as the sum of the squares of market shares for each firm.

(c) Inverted scale.

Chart 2.11 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 2.12 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 2.13 Major UK banks’ and LCFIs’ credit default swap premia(a)

Sources: Published accounts, Thomson Datastream, Markit Group Limited and Bank calculations.

(a) Asset-weighted average five-year premia.(b) April 2007 Report.

Chart 2.14 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 2.15 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 and semi-annual data.(c) Includes (among other items) commodities and foreign exchange.

Chart 2.16 LCFIs’ revenue sources

Sources: Bloomberg and Bank calculations.

Chart 2.17 LCFIs’ return on common equity

Sources: Bloomberg and Bank calculations.

(a) Data for European LCFIs and UK LCFIs are half-yearly.

Table 2.A LCFIs’ market shares as lead arrangers and book Runners(a)

Sources: Dealogic and Bank calculations.

(a) For period 1 January to 30 September 2007.(b) Data include residential mortgage-backed securities (RMBS) backed by sub-prime and non-first lien mortgages.(c) Collateralised debt obligations (CDO).(d) Asset-backed securities (ABS) excluding RMBS issuance.

Chart 2.18 Monthly return on hedge fund strategies(a)

Sources: Bloomberg, CSFB/Tremont and Bank calculations.

(a) Maximum-minimum range and interquartile range calculated monthly from January 1994 to August 2007.