ABC Bank Asset & Liability Committee

21 May 2014

Author: Moorad Choudhry, Treasury • Location: Room xxx

Version Control - Final 1.0

• Audio: 020 xxx

Membership
Attendance at Prior ALCOs

Function Attending? 08/10/13 12/09/13 11/06/13

Name Title

M N Chief Executive Y N Y

M Y Deputy CEO N N N

M,C Y CFO Y Y Y

M,C Y Head of Treasury Y Y Y

M Y MD Retail Banking Y N Y

M Y MD Regional Coverage Y Y Y

M Y MD Corporate Banking Y Y Y

M Y MD Private Banking & Advice Y N Y

M Y Chief Risk Officer N N N

M Y MD Products & Marketing Y Y Y

M Y Head of Strategy Y Y Y

G Y Head of Credit Risk

G
C = Chair, M = Member
Y Head of ALM/Balance Sheet Management N Y (TL)

© Moorad Choudhry 2014 C = Chair M= Member G = Guest

2
 Attendees
Attendance at Prior ALCOs

Function Attending? 08/10/13 12/09/13 11/06/13

Name Title

A Y Y Y Y
A Y Y Y Y
A Y Y Y Y
A Y N N N
A Y Y Y Y
A Y Y Y Y
A Y Y Y N
A Y Y Y Y
A Y N Y N
A Y Y Y Y
A Y N N N
A Y Y N N
A Y Y Y N
A Y Y Y N
A Y N N N
Sec Y N Y Y
Sec Y Y N N

A = Attendee, Sec = Secretariat, D = Deputy, G = Guest

© Moorad Choudhry 2014 3

Agenda
For
Section Subject Slide Owner
Information/Decision

Previous Minutes 5 For Approval

Executive Summary Actions 8 For Approval
Key Messages 9 For Information
Market Outlook 10 For Information
Funding Gap 11 For Information
MI Pack
RWA Metrics & Trends 12 For Information
PV01 Gap Risk (Parallel Shift) 13 For Information
Agenda Items
S&P RES ratings process verbal For Information
Updates
Update on ILAA following PRA deep dive verbal For Information
For Approval Transfer of CBD LiBOR linked loans to ABC 16 For Approval
For Discussion Liability Strategy - Next Steps 18 For Information
AOB
Appendix A - Balance Sheet & Key Metrics 25 For Information
Appendix B - Balance Sheet Trends 26 For Information
Appendix C - Retail Net Interest Margin Analysis 27 For Information
Appendix D - CB Net Interest Margin Analysis 28 For Information

Appendices Appendix E - Competitor Deposit Pricing 29 For Information

Appendix F – Interest Rate Risk Management 30 For Information

Appendix G – Peer Analysis 31 For Information

ALCO Library 33 For Information

© Moorad Choudhry 2014 4

Previous Minutes Minutes from ALCo 08/10/2013
Agenda
Minute / Decision Action / Owner / Date
Item
1 Previous Meeting Minutes & Actions
 There were no comments on the minutes from the 12th September meeting which are now approved.
No action required


2 Key messages
No action required
3 Document updates & approvals
 The TOR has been updated again following feedback received from ALCo members. The latest version was incorporated into the ALCo pack for
No action required
October and formally approved.

4 Market Outlook

No action required

5 Balance Sheet Composition – Key Metrics & Trends

No action required

6 Liability Strategy
No action required

© Moorad Choudhry 2014 For Approval 5

Previous Minutes Minutes from ALCo 08/10/2013

Agenda
Minute / Decision Action / Owner / Date
Item
10 ILAA

081013-03 – – 03/12/13

11 AOB


081013-04 – – 03/12/13

© Moorad Choudhry 2014 For Approval 6

Outstanding Actions
ALCo Ref Subject Action Owner Due Date Update Status
ABC peer group comparisons to be used within Wholesale Funding
11/06/13 110613-04 Market Outlook Curve comparisons in future BALCo MI Pack if information is Q4 2013 Ongoing Open
publicly available.

Liability strategy & Engagement with advisors to Local Authorities to form part of the
11/06/13 110613-09 Q1 14 Work in progress Open
liquidity risk issues ABC Liabilities Strategy

ABC peer group comparisons to be expanded to include publicly

Ongoing work to build out peer
available information on RWA and capital.
analysis in more detail
08/10/13 081013-02 Peer analysis 03/12/13 Open
Depth and population of peer analysis to be reviewed by ABC
Updated peer analysis in appendix I
Treasury.
ABC dividend policy initial guidance to be obtained in order to inform Closed
08/10/13 081013-03 Dividend Policy 03/12/13 Completed –
the capital plan..

© Moorad Choudhry 2014 For Approval 7

Key Messages

Subject Key Message Slide

 Feedback from PRA ILAA deep dive
Updates  S&P RES ratings process
Transfer of CBD LiBOR
Approval for transfer of products from retained to ABC at off-market rates required. 16
linked loans to ABC

Liability Strategy Next steps on ABC Liability Strategy to be discussed. 18

Month Forward ALCo Agenda

January ILAA based on 9+3 final results

January Ratings RES process update

February / March Internal Funds Pricing Policy

February / March Monthly ALCo meetings scheduled for Q1 2014

© Moorad Choudhry 2014 For information 8

 Market Outlook
Interest Rate Outlook: Stable
Swap Rates - Current vs Forecast
 Little change from last ALCo, with minimal 3.00
Swap Rates - Current vs Prior 3.50

move in swap rates. The 10-year Gilt yield 3.00

2.50
priced at 2.75% (up 4 bps) from last ALCo. We 2.50
continue to view this as temporary and expect 2.00
2.00
both absolute levels and steepening to 1.50
increase during Q1 2014. 1.50

1.00 1.00

 GBP-USD traded around our predicted range 0.50 0.50

of 1.58-1.62 since last ALCo, priced low 1.56 1Yr 2Yr 3Yr 5Yr 10Yr 1Yr 2Yr
25-Nov-13
3Yr
Budget Sep-15
5Yr 10Yr
Mkt Fw d Nov-15
and high 1.63. We target 1.62 for year end. 25-Nov-13
31-Mar-13
30-Sep-13
31-Dec-12
28-Jun-13

EUR Liquidity Premium Competitor Svensson

Market Perception: Stable

 Updated Svensson curve shows an improvement in Parent

wholesale rate. While still an outlier, it is no longer the top of
the peer group. Note however that M&IB have applied a cap
to the long end as a constraint, keeping the curve lower.

© Moorad Choudhry 2014 Source: Treasury For information 9

 Key Risk Indicators Summary Dashboard

Operational Board Minimum Current Change from Operational Change from

Treasury Dash Board Minimum last month
Board Minimum Current
Minimum last month
Capital Tier 1 CET Ratio <16% <18% Lending & Savings Lending - Actual vs Target <18% <16%
6-month forecast <16% <18% Year-to-date Savings - Actual vs Target <£10m <£0m
Savings - WAC of funds 1.52% 1.61%
Liquidity % of assets <18% <16%
Operational Buffer <£10m <£0m Pipeline Month 1 £9.467M £10.519m
Survival days 122-days 92-days Month 2 £10.592m £11.769m
Month 3 £10.592m £11.769m
LCR 150% 110%
SLR 140% 110%
IRRBB VaR £2.021m £2.526m
NSFR 140% 110%
VaR 4.50% 6.00%
EaR TBA TBA
Loans to Deposit Ratio >95% 94.9% to 85%
Basis Risk - Target 100% N/A

Savings On-notice amount <15% 20%

Banks ClearBank N/A £20m
Easy Access withdrawal 5% - 9.9% ≥10%
Metro N/A £4m
1-month cum. outflow of deposits £10m - £14.9m ≥£15m
NatWest N/A £20m
Coventry N/A £20m
Margin Net Interest Margin 3%-3.79% <3%
NT Sterling Fund N/A £5m

Operational Board Minimum Current Change from

Maximum last month Large Exposures Aggregated CET 1 >15% >20%
Asset Encumberance 25% 25% Maximum large exposure >80% >100%

Commentary:

© Dean Carter 2022. Reproduced with permission.

© Moorad Choudhry 2014 10

Summary KRI Dashboard – trend graphs

LIQUIDITY
LIQUIDITY
Cash at bank
% of and Survival days LCR, SLR, NSFR
HQLA
% line & % line graph
B of E
Survival days Column
£m - Layered Column

GAP Sensitivity
NII Delta Net Interest Income
Actual vs limit
Basis risk BR01 Income, Cost, Net
£m, 3-decimal places
Line graph Layered Column
Line graph

© Dean Carter 2022. Reproduced with permission.

© Moorad Choudhry 2014 11

 ABC Balance Sheet
Key balance Sheet Metrics Q2 13 Oct-13 FY15e
Q2 13 Aug 13 Sep 13 Oct 13 FY15
Actual Actual Actual Actual Q2 - Oct Forecast FY15
Balance Balance Balance Balance change Balance change LDR 86% 83% 92%
Sheet Sheet Sheet Sheet Sheet Customer funding surplus / (gap) 3,140 4,010 1,842
Required min LAB size 3,410 3,528 3,449
£'m £'m £'m £'m £'m £'m £'m
Type A / Type B split 23:77 23:77 23:77
Gross Customer Assets 19,600 19,601 19,535 19,495 (105) 22,243 2,748 Leverage Ratio (3% min required) 7% 7% 6%
Less provisions (522) (522) (518) (521) 1 (580) (59) Encumbrance ratio ** 0% 0% 10% - 20%
Net Customer Assets 19,078 19,079 19,017 18,974 (104) 21,663 2,689
Customer
Balance
Customer Liabilities 22,218 22,554 22,631 22,984 766 23,505 521
Sheet Key points:
Customer funding (gap) / surplus 3,140 3,475 3,614 4,010 870 1,842 (2,168) 
LDR 86% 85% 84% 83% -3% 92% 10%
£2.7bn lending growth planned from Oct
Derivative assets 384 364 369 369 (15) 416 47
13 to FY15.
Derivative liabilities (96) (83) (83) (83) 13 (112) (29) 
Net Derivatives 288 280 285 285 (3) 304 19
£0.5bn deposit growth planned from Oct
Other assets (incl fixed assets) 173 189 178 178 5 543 365 13 to FY15.
Other liabilities (16) (16) (16) (16) 0 (21) (5) 
Stand Net other assets 157 173 162 162 5 522 360
QoQ lending under performance and
Alone
Funding (gap) / surplus before
customer funding deposit growth
Balance
Sheet Treasury overlay 2,695 3,021 3,167 3,563 868 1,016 (2,547)  Starting point for funding challenge, see
Build Up Treasury Overlay
Liquid asset buffer 3,410 3,462 3,473 3,528 118 3,449 (79)
slide 17
Capital * (1,995) (1,955) (1,964) (1,964) 30 (1,950) 14
Treasury funding (gap) / surplus (1,415) (1,507) (1,509) (1,563) (148) (1,499) 64
Note:
Net funding (gap) / surplus 1,280 1,514 1,658 2,000 720 (483) (2,483) Standalone view is prepared on broad assumptions including
capital levels (based on estimated RWA analysis – see below), as
* Core Tier 1 1,596 1,564 1,571 1,571 (24) 1,576 5 well as Liquid Asset Buffer requirements (based off an ILAA type
Additional Tier 2 399 391 393 393 (6) 374 (19) analysis).
Retained Earnings ** Preliminary verbal guidance from PRA May 2013

LAB: * Capital:
Required LAB size increase from £3.4bn at Q2 to £3.5bn at Aug13 due to increased deposits;

Capital has been calculated as follows:
Required LAB in 2015 forecasted to be c £3.5bn
 LAB investment strategy: 50% cash/CB reserves & 50% Gilts.
 CT1: 12% of RWAs
 Forecasted yield of 150bps in 2015 based on latest 9+3 curve assumptions, increased from 105bps from 4+8  T2: 3% of RWAs
(treasury P&L cost reduced from £18m to £5m)
Note: Q2 13 and Forecast Capital figures have been re-stated to apply this methodology.
 Gilts Portfolio target duration: 4yrs

© Moorad Choudhry 2014 Source: Treasury For information 12

 RWAs – Metrics and Trends
Total W&G TotalRetail Total Corporate
Dec-12 Aug-13 Sep-13 Oct-13 vs PM FY 13 9+3 Dec-12 Aug-13 Sep-13 Oct-13 vs PM FY 13 9+3 Dec-12 Aug-13 Sep-13 Oct-13 vs PM FY 13 9+3
£m £m £m £m £m £m £m £m £m £m £m £m £m £m £m £m £m £m
Mortgages 1,365 1,197 1,187 1,172 -15 1,189 1,365 1,197 1,187 1,172 -15 1,189 0 0 0 0 0 0
Loans 9,531 9,147 9,161 9,153 -8 9,179 1,009 876 888 881 -7 847 8,523 8,271 8,273 8,272 -1 8,332
Current Accounts 350 319 337 340 3 296 350 319 337 340 3 296 0 0 0 0 0 0
Credit Cards 452 447 447 452 5 448 320 318 319 323 4 319 131 129 129 129 0 129
Derivatives 358 295 274 274 0 344 0 0 0 0 0 358 295 274 274 0 344
Operational Risk 1,581 1,576 1,576 1,576 0 1,553 641 641 641 641 0 688 940 935 935 935 0 865
Fixed Assets 104 105 104 104 0 104 0 0 0 0 0 0 0 0 0
Total 13,741 13,086 13,087 13,071 -17 13,113 3,685 3,352 3,372 3,357 -15 3,339 9,952 9,630 9,611 9,610 -1 9,670

RW% 51.0% 51.0% 50.9% 50.9% 0.0% 23.8% 22.4% 22.5% 22.5% 0.0% 84.4% 86.9% 86.7% 86.7% 0.0%
CET1 @ 12% 1,649 1,570 1,570 1,568 - 2 1,561

 Retail October RWAs are marginally lower than September as mortgage and loan balance sheet have seen reductions in the month. October YTD RWAs is above 9+3 full
year forecast with pressure points in loans and current accounts.
 Corporate October RWAs are the September reported number as a file was not delivered to complete the month end and it was deemed to complex to replicate in time
available. The issue is understood and will be rectified for November month end reporting. The reported RWA number for October is therrefor likley to be overstated as the
drawn balance sheet has reduced in October.
 CET1 at 12% continues at c. £1.6bn before SME discount benefit due 1 January 2014. If the SME discount was included the CET1 would reduce below £1.5bn.

SME Mid-Corp
Dec-12 Aug-13 Sep-13 Oct-13 vs PM FY 13 9+3 Dec-12 Aug-13 Sep-13 Oct-13 vs PM FY 13 9+3 Key points:
£m £m £m £m £m £m £m £m £m £m £m £m
Mortgages
0 0 0 0 0 0 0 0 0  Increase in Retail RWA as forecast last
Loans
Current Accounts
5,855 5,851 5,765 5,765 0 5,806 2,668 2,421 2,507 2,507 0 2,526 ALCO.
0 0 0 0 0 0 0 0
Credit Cards 
Derivatives
131 128.973 129 129 0 129 0 0 0 0 Stable Corporate RWA and expected
0 0 0 0 358 295 274 274 0 344
Operational Risk
760 751.000 751 751 0 703 180 184 184 184 0 162
unchanged this quarter.
Fixed Assets
0 0 0 0 0 0 0 0 0 0 0  Stable CET1
Total 6,746 6,731 6,645 6,645 0 6,638 3,206 2,899 2,966 2,965 -1 3,032

RW% 79.8% 83.7% 83.3% 83.3% 0.0% 96.8% 96.0% 96.2% 96.2% -0.02%
Notes
• For October Corporate numbers are based on the September reported numbers so are 2 months in arrears. RTS Customers are included and weighted at 100%.
• December 2012 SME retail assets are weighted at 45% which has been revised for June 2013 to 55% reflecting retained model experience.
• RWA% - Excludes Derivatives, Operational Risk, Fixed Assets, RTS adjustment (calculated as RWA/EAD).
• Retail RWAs are extracted from the Retail Credit Systems and mortgages have been adjusted for pooling (an uplift of 5%). Retail card balances are as per September month end.

© Moorad Choudhry 2014 Source: Risk For information 13

Cross-border exposure and concentration
1600
Approved Limit Cross-boarder exposures
1400
Exposure
1200
-- review of country limits at next ALCO (submission
1000
from Credit Committee)
800

600
-- proposal from Corporate on medium-term country
400
outlook at next ALCO
200

500
Approved Limit
Top 8 offshore counterparty exposures
450
400 Exposure
-- see Appendix for maturity profile, credit rating and CDS
350 price where quoted
300
250
200
Key points:
150
 Stable position and no pressure on limits
100
50
(excessive headroom still in place)
0
Maybank Qatar Standard HSBC Deutsche RBS ICD CIMB
National Chartered Bank
Bank Bank

© Moorad Choudhry 2014 Source: Treasury 14

 Interest Rate Risk Management
Key points:
NII and Repricing Gap (Parallel Shift) - July 2013 data
 ABC NIM relatively insensitive, variable balanced book combined with hedging
of fixed rate products results in little NII / NIM volatility from interest rate
BS 12m NII Forecast (£m)
Jul-13 Rolling Avg* movements
Up Down Up Down
£m Market  5% of Corporate and 8% of Retail liabilities are fixed rate, and 6% of
100bps 100bps 200bps 200bps
Assets
Residential Mortgages 8,856 340 397 333 454 333
Corporate and 40% of Retail assets are fixed rate (retail fixed assets mostly
Loans 9,260 333 415 290 497 290 fully hedged fixed mortgages).
Overdrafts 1,149 47 55 43 64 43
Credit cards 386 43 43 43 46 43
Fixed Rate Mortgages
Other Assets 11 2 4 1 6 1 200
Total Assets 19,661 764 914 710 1,068 710 100
Derivatives 0
(100)
Receive Fixed 6,672 58 11 79 (35) 78
(200)
Asset Balancer (NSFR) 2,589 31 77 4 123 4 (300)
Total Income 853 1,003 794 1,155 792 (400) Gap Cumulative Gap

Liabilities (500)
(600)
Current Accounts 4,787 (3) (14) (0) (26) (0)
(700)
Savings 16,753 (124) (251) (65) (378) (65) (800)
Other Liabilities 711 (23) (61) (3) (99) (3) 0-3M 3-6M 6-12M 2y 3y 4y 5y 6y 7y 8y 9y 10y >10y
Total Liabilities 22,251 (150) (326) (68) (503) (68) Fixed Rate Loans (Retail Only)
Derivatives 5
0
Pay Fixed 9,165 (87) (30) (111) 26 (107) (5)
Total Income (237) (357) (178) (477) (175) (10)
(15)
Total
(20)
Net Interest Income 616 646 616 678 617 (25) Gap Cumulative Gap

NIM 3.30% 3.46% 3.30% 3.64% 3.31% (30)

ABC NIM (35)
(40)
(45)

For Information
For information – Total 0-3M 3-6M 6-12M 2y 3y 4y 5y 6y 7y 8y 9y 10y >10y

Total
ParentGRetail & Corporate Book 50
Fixed Rate Deposits (Retail Only)

Total Assets 225,866 40 Gap Cumulative Gap

30

Net Interest Income 6,166 6,351 6,062 6,581 6,073 20

NIM 2.90% 2.99% 2.86% 3.10% 2.86% 10

0
(10)
(20)
Bluebird Repricing Gaps*
100 (30)
0-3M 3-6M 6-12M 2y 3y 4y 5y
0
(100) Total Corporate Balance Sheet
(200) 700
(300) 600 Gap Cumulative Gap
Gap Cumulative Gap
(400) 500
(500) 400
(600) 300
(700)
200
(800)
0-3M 3-6M 6-12M 2y 3y 4y 5y 6y 7y 8y 9y 10y >10y
100
0
(100)
* NII & NIM quoted represent a 12 month forecast based on a flat July 2013 balance (200)
(300)
sheet, modelled in Bancware using existing Divisional business 0-3M 3-6M 6-12M 2y 3y 4y 5y 6y 7y 8y 9y 10y >10y
assumptions.
© Moorad Choudhry 2014 Source: Treasury For information 15
S&P credit rating process

Verbal update

© Moorad Choudhry 2014 For information 16

Update on ILAA following PRA deep dive

Verbal update

© Moorad Choudhry 2014 For information 17

Transfer of floating rate CBD products to ABC
As part of the Treasury workstream, the transfer of corporate Libor-linked loans and
deposits on ACBS from Parent plc to ABC is required.

£4.5bn LIBOR linked loans are expected to transfer at the last fixing of LIBOR, so as
not to generate P&L.

 However normal market practice would be for transfers to occur at market rates, and
the Ops team would be expecting the transfer at the on-market rate and not the historic
last fix.

Executive Approval is required therefore for such an “off market” transfer, hence we are
seeking approval at ABC ALCo.

© Moorad Choudhry 2014 For approval 18

 ABC Funding Challenge
Summary:
 2015 projected funding shortfall on current asset growth targets: Base Case £1.8bn*, 9+3 Stress Case: £4bn**

 Given high confidence in conservative lending targets, an estimated £45m incremental funding cost exists if £1.8bn

deposit raising needs to be replaced by wholesale funding, reducing 2015 ROE by 2.2% to 11.9%
 Acceptable asset encumbrance levels restrict secured fund raising:

 PRA guidance - mid-teens % translating to a maximum £2.7bn (20% haircut collateral-based funding)
 BAU ABC to operate below the prescribed encumbrance limits, and within market expectations
 ABC Bank rating will impact appetite and pricing of ABC deposits/debt:
 Investment grade (BBB) rating targeted, with indicative rating of BB+ to BBB from M&IB desktop model
Recommendations:
 Deposit raising to cover expected shortfall preferred (especially as asset encumbrance constraints mean secured

funding alone cannot meet stress case funding requirements).

 Unsecured credit facility in place immediately before IPO: Up to £0.5bn; up to 2 years tenor

 Secured liquidity facility in place immediately before IPO: £1bn under Base Case; up to 2 years tenor

 RMBS programme ready for market issuance in advance of IPO, (i) to take out liquidity lines with periodic issuance

over first 2 year post-IPO and (ii) diversify funding over time.
 Senior unsecured note programme to be ready for issuance within 12 months of IPO, once ABC Bank established in

the capital markets to further diversify funding sources.

Notes:
 Resourcing for market issuance programme will need to be in place mid 2014.

© Moorad Choudhry 2014 For information 19

 Summary
For Noting

TITLE ABC Deposit gathering update

Paper Sponsor Managing Director; Deposit Products
Paper Authors
Strategic Update
Subject Classification Potential P&L / LDR / RoE impact this year? Yes (2014)
Potential Compliance impact? Yes (2014)

• Request for noting of options being explored to meet ABC deposit gathering requirements pre
Objective separation.
• Support from ALCo for the approach to option evaluation and pre-syndication

1. ABC has a requirement to meet LDR criteria for Credit Grading/Liquidity Purposes on separation.
2. £0.9bn funding growth in plan by Aug 15 – to meet target balance sheet shape. Likely outflow
Key Points for Noting and
scenarios could require a further £2-3.5bn to be raised.
decision
3. Timing of agreement of deposit raising plan, is key – required to give confidence in the banking
licence and credit rating application processes by mid 2014.

ABC need to follow separate deposit gathering approach vs retained, in order to meet funding
Main Message
targets by separation. Cost and customer conduct considerations are central to option evaluation
Governance / Approval to date Paper circulated
Subsequent use of this paper Detailed pricing proposals through ABC Bank Product Pricing Committee

For information
© Moorad Choudhry 2014 20
 ABC deposit gathering options for evaluation

Deposit gathering considerations: deposit type

• There are several options for gathering deposits. Key considerations are costs and the quality of the deposits, fair customer outcomes and low additional cost.

Corporate
Negotiated* using Retail Private Retail brand (Inc Fixed Rate Depo Products on
Evaluation criteria existing discretion Negotiated cost (inc cost) ABC brand

Estimated Cost of Funds per £100M £0.8M £1M £2.3M £2.3 (tbc) >£0.8M
(expected
higher rate
required)

Operational Impact on ABC H H M M Unclear if

feasible

Impact on Retained M L H H L

TCF A A G G G

Relationship Deepening H H M M M

Max Fund Raising over the Period £2150 £100M £300M £500m tbc tbc

Timing 2014-15 2014-15 2014-15 2014-15 2015

Recommendation Attractive Attractive More costtly More costly Unfeasible?

New deposit gathering

For information
© Moorad Choudhry 2014 21
 Next steps

Recommendations for subsequent approval – to be explored and presyndicated pre ALCo approval

Level of incremental deposit • £0.9b deposit gathering in ABC 9+3 budget between now and separation
raising • Amount raised will be subject to ongoing monitoring. For example, planned LA re-pricing could lead to a bigger stretch on our
deposit raising. A shortfall on lending could lead to a lower target

Source of incremental deposit • Recommended mix of corporate and retail.

Timing of incremental deposit • Timing is of key importance as cost of holiding additional deposits on balance sheet needs to be balanced with:
raising • Requirement for a clear deposit gathering plan pre banking licence and ratings applications
• A significant amount of the cash that we expect to be able to win is already with other institutions on a Notice or Term
basis so we need a cohesive and timely strategy to convert.

Proposed next steps

1. Viability of options to be explored:

• Finance to take the lead on b/s impact
• Products to take the lead on syndication of deposit gathering options with Retail and Corporate Products (CSG)
• Risk and Products to assess conduct to our customers of each option, and syndicate views with Retail and CBD Risk
2. Agreement at ALCo. Pricing decisions through Product Pricing committee
3. Escalation, if necessary, through Board.

For information
© Moorad Choudhry 2014 22
 Appendices

© Moorad Choudhry 2014 23

 Appendix A - Balance Sheet Composition and Forecast
October 13 YTD (October 13) Full Year

Actual vs Prior Mth vs 2013 9+3 Actual vs PY vs 2013 9+3 2013 9+3

Spot Balance Sheet (£bn)

£bn £bn % £bn % £bn £bn % £bn % £bn
Mortgages 8.7 (0.0) (1% ) 6 (0.0) (0% ) 6 8.7 (0.5) (5% ) 6 (0.0) (0% ) 6 8.7
Customer Loans & Advances (Gross) 10.8 (0.0) (0% ) 6 (0.0) (0% ) 6 10.8 (0.6) (5% ) 6 (0.0) (0% ) 6 10.8
Total Assets (Gross) 19.5 (0.1) (0%) 6 (0.1) (0%) 6 19.5 (1.1) (5%) 6 (0.1) (0%) 6 19.5
Total Deposits 23.0 0.4 2% 5 0.7 3% 5 23.0 1.9 9% 5 0.7 3% 5 22.1
funding surplus / (gap) 3.5 0.4 14% 0.7 26% 3.5 3.0 632% 0.7 26% 2.6

Performance Metrics

ROE 15.99% 359 bps 5 16.68%

RWA's (£bn) 13.1 (0.0) (0.10%) 6 13.1 13.1
Loan/Deposit Ratio 84.82% (160 bps) 6 (276 bps) 6 84.82% (1,292 bps) 6 (276 bps) 6 88.17%
C/I Ratio 50.78% (600 bps) 6 (311 bps) 6 50.97% 397 bps 5 (31 bps) 6 51.81%
Asset Margin 3.15% 2 bps 5 10 bps 5 3.08% 14 bps 5 3 bps 5 3.06%
Liability Margin 0.26% 2 bps 5 (5 bps) 6 0.25% (36 bps) 6 (1 bps) 6 0.27%
Net Interest Margin 3.46% 5 bps 5 4 bps 5 3.37% (23 bps) 6 2 bps 5 3.37%
FTEs*** 3,969 5 5

IL as % of spot assets **** 0.57% (8 bps) 6 (4 bps) 6 0.44% (6 bps) 6 (0 bps) 6 0.47%

Liabilities

Assets

© Moorad Choudhry 2014 Source: Finance For information 24

 Appendix B - Balance Sheet Trends
CONSOLIDATED Year on Year Year to Date Actual vs 2013 9+3

£m Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-12 Oct-13 Var Var % Dec-12 Oct-13 Var Var % Bud Act Var Var %
Assets (119) (193) (104) (115) 2 (44) 6 20,642 19,495 (1146) (6%) 6 20,571 19,495 (1076) (5%) 6 19,557 19,495 (62) (0%) 6

Mortgages (58) (98) (43) (56) (38) (65) 6 9,212 8,707 (506) (5%) 6 9,246 8,707 (540) (6%) 6 8,742 8,707 (36) (0%) 6
Loans (15) (99) (45) (21) 30 22 5 9,596 9,314 (282) (3%) 6 9,529 9,314 (215) (2%) 6 9,281 9,314 33 0% 5
Overdrafts (42) (3) (21) (39) 4 3 6 1,211 1,077 (133) (11%) 6 1,371 1,077 (293) (21%) 6 1,073 1,077 4 0% 5
Credit Cards (1) 3 10 12 5 0 5 392 397 6 1% 5 375 397 22 6% 5 398 397 (1) (0%) 6
Other (3) 4 (5) (12) 1 (4) 6 231 - 0 (231) (100%) 6 50 - 0 (50) (100%) 6 72 - 0 (72) (100%) 6
Liabilities 457 158 256 3 336 76 5 20,954 22,984 2030 10% 5 21,451 22,984 1533 7% 5 22,329 22,984 655 3% 5
MTAs (2) 155 (17) 71 45 52 5 4,490 4,990 500 11% 5 4,517 4,990 473 10% 5 4,890 4,990 101 2% 5

Savings 532 106 287 (17) 344 60 5 15,372 17,454 2082 14% 5 15,834 17,454 1620 10% 5 16,939 17,454 515 3% 5

Money Markets (44) (105) (18) (57) (57) (38) 6 1,092 498 (595) (54%) 6 1,048 498 (550) (53%) 6 501 498 (3) (1%) 6

Other (29) 3 4 5 3 2 5 - 42 42 5 51 42 (9) (17%) 6 38 42 4 5

Funding 576 351 360 118 334 120 5 312 3,489 3177 1017% 5 879 3,489 2609 297% 5 2,772 3,489 717 26% 5

RETAIL Year on Year Year to Date Actual vs 2013 9+3

£m Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-12 Oct-13 Var Var % Dec-12 Oct-13 Var Var % Bud Act Var Var %
Assets (58) (117) (43) (54) (47) (70) 6 10,910 10,215 (695) (6%) 6 10,914 10,215 (700) (6%) 6 10,296 10,215 (82) (1%) 6

Mortgages (58) (98) (43) (56) (38) (65) 6 9,212 8,707 (506) (5%) 6 9,246 8,707 (540) (6%) 6 8,742 8,707 (36) (0%) 6

Loans (12) (15) (7) (2) (8) (8) 6 1,098 994 (104) (9%) 6 1,081 994 (87) (8%) 6 996 994 (2) (0%) 6

Overdrafts 13 (6) (5) 6 (8) 3 6 274 246 (27) (10%) 6 273 246 (27) (10%) 6 231 246 15 7% 5

Credit Cards (1) (1) 12 10 6 2 5 326 330 3 1% 5 307 330 22 7% 5 327 330 2 1% 5

Other (0) 3 (0) (12) 2 (2) 6 - - 61 (61) 6 7 - 61 (69) (926%) 6 - - 61 (61) 6

Liabilities (56) 88 102 36 134 52 5 8,375 9,103 727 9% 5 8,520 9,103 583 7% 5 8,986 9,103 117 1% 5
Savings 38 49 57 14 113 49 5 6,305 6,753 448 7% 5 6,419 6,753 334 5% 5 6,733 6,753 20 0% 5

MTAs (65) 36 41 16 18 1 5 2,071 2,307 236 11% 5 2,049 2,307 258 13% 5 2,253 2,307 54 2% 5

Other (29) 3 4 5 3 2 5 - 42 42 5 51 42 (9) (17%) 6 38 42 4 5

Funding 2 205 146 89 181 123 5 (2535) (1112) 1422 (56%) 5 (2395) (1112) 1283 (54%) 5 (1310) (1112) 198 (15%) 5

CORPORATE Year on Year Year to Date Actual vs 2013 9+3

£m Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-12 Oct-13 Var Var % Dec-12 Oct-13 Var Var % Bud Act Var Var %
Assets (61) (76) (61) (62) 48 26 9,732 9,281 (451) (5%) 6 9,657 9,281 (376) (4%) 6 9,261 9,281 20 0% 5
Loans (4) (84) (38) (19) 38 30 8,499 8,320 (178) (2%) 6 8,448 8,320 (128) (2%) 6 8,285 8,320 35 0% 5
Overdrafts (55) 3 (16) (44) 12 (0) 937 831 (106) (11%) 6 1,098 831 (267) (24%) 6 842 831 (11) (1%) 6
Credit Cards 0 4 (2) 1 (1) (1) 65 68 2 4% 5 68 68 (0) (0%) 6 71 68 (3) (4%) 6
Other (2) 1 (5) 0 (1) (2) 231 61 (170) (73%) 6 43 61 18 43% 5 72 61 (11) (15%) 6
Liabilities 513 70 153 (33) 202 24 12,579 13,882 1303 10% 5 12,931 13,882 950 7% 5 13,343 13,882 538 4% 5
MTAs 63 118 (58) 55 27 52 2,419 2,684 264 11% 5 2,468 2,684 215 9% 5 2,637 2,684 47 2% 5

Deposits 494 57 230 (31) 231 10 9,067 10,700 1634 18% 5 9,415 10,700 1286 14% 5 10,206 10,700 495 5% 5

Money Markets (44) (105) (18) (57) (57) (38) 1,092 498 (595) (54%) 6 1,048 498 (550) (53%) 6 501 498 (3) (1%) 6

Other 0 0 0 0 0 0 - - 0 6 - - 0 6 - - 0 6

Funding 574 146 214 29 153 (3) 2,847 4,601 1754 62% 5 3,274 4,601 1327 41% 5 4,083 4,601 518 13% 5

© Moorad Choudhry 2014 Source: Finance For information 25

 Appendix C - ABC Margins Analysis Retail - NIM
YTD (October 13) £m
Mortgages NIM %
2.8%
22.0
Acts vs 2013 9+3 Vol Rate vs PY Vol Rate 20.0 2.7%

£k £k % £k £k £k % £k £k 18.0 2.6%
16.0 2.5%
14.0
2.4%
Mortgages 12.0
10.0 2.3%
8.0 2.2%
NII 192,993 (185) (0%) (93) (92) 16,642 9% 6,556 10,086

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13

Apr-13

May-13

Jun-13

Jul-13

Aug-13

Sep-13

Oct-13
Avg Bal £m 8,740 (4) (0%) 6 6 313 4% 5 5
£m NIM %
Loans
6.0 9.5%
Margin % 2.65% (0 bps) 14 bps
9.0%
5.5
8.5%
5.0
8.0%
4.5 7.5%
Loans*
7.0%
4.0
6.5%
NII 55,212 (179) (0%) (24) (154) 1,556 (3%) 415 1,141 3.5
6.0%
3.0 5.5%
6 6 5 5

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13

Apr-13

May-13

Jun-13

Jul-13

Aug-13

Sep-13

Oct-13
Avg Bal £m 775 (0) (0%) 6 (1%)

Margin % 8.56% (2 bps) 18 bps £m Overdrafts NIM %

2.5
14.0%

12.0%
Overdrafts 2.0
10.0%

NII 22,030 285 1% 138 148 (777) (3%) (1,814) 1,037 1.5 8.0%

6.0%
Avg Bal £m 199 1 1% 5 5 (17) (8%) 6 5
1.0 4.0%

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13

Apr-13

May-13

Jun-13

Jul-13

Aug-13

Sep-13

Oct-13
Margin % 13.29% 9 bps 63 bps
Credit Cards
£m NIM %
4.0 14.0%
Credit cards
3.5 12.0%

3.0 10.0%
NII 30,864 73 0% 37 37 (528) (2%) (1,326) 798
2.5 8.0%

Avg Bal £m 313 0 0% 5 5 (14) (4%) 6 5 2.0 6.0%

1.5 4.0%

Margin % 11.85% 1 bps 31 bps 1.0 2.0%

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13

Apr-13

May-13

Jun-13

Jul-13

Aug-13

Sep-13

Oct-13
MTAs £m MTAs NIM %
6.0 2.3%
5.5 2.1%
NII 27,556 115 0% 52 63 (11,931) (30%) 1,921 (13,853) 5.0 1.9%
4.5
1.7%
4.0
Avg Bal £m 2,026 4 0% 5 5 94 5% 5 6 1.5%
3.5
1.3%
3.0
1.1%
Margin % 1.63% 0 bps (82 bps) 2.5
2.0 0.9%

1.5 0.7%
1.0 0.5%
Savings

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13

Apr-13

May-13

Jun-13

Jul-13

Aug-13

Sep-13

Oct-13
NII (8,064) 127 2% 2 125 (7,317) (980%) 5 (7,323) NIM %
£m
Savings
Avg Bal £m 6,222 (2) (0%) 5 5 (45) (1%) 5 6 0.05%

0.0 0.00%

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13

Apr-13

May-13

Jun-13

Jul-13

Aug-13

Sep-13

Oct-13
(0.05%)
Margin % -0.16% 0 bps (14 bps) (0.4) (0.10%)
(0.15%)
(0.8)
(0.20%)
(1.2) (0.25%)
ACT NII 2012 ACT Margin ACT NII 2013
Total NII 320,592 238 0% 112 126 (2,355) (1%) 5,758 (8,113)
5 5 5 6

© Moorad Choudhry 2014 Source: Finance For information 26

 Appendix D - ABC Margins Analysis SME - NIM
YTD (October 13)
£m NIM %
Acts vs 2013 9+3 Vol Rate vs PY Vol Rate Loans
£k £k % £k £k £k % £k £k 20.0
2.6%
18.0
Loans 16.0
2.2%

14.0 1.8%
NII 166,191 3,362 2% (386) 3,748 886 1% (8,689) 9,575 1.4%
12.0
Avg Bal £m 8,351 (20) (0%) 6 5 (463) (5%) 6 5 10.0 1.0%

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13

Apr-13

May-13

Jun-13

Jul-13

Aug-13

Sep-13

Oct-13
Margin % 2.39% 5 bps 14 bps
£m
Overdrafts NIM %
Overdrafts 1.8 4.5%
1.7
1.6 4.0%
NII 12,664 99 1% 151 (52) (3,528) (22%) (3,720) 192
1.5 3.5%
5 6 6 5 1.4
Avg Bal £m 434 5 1% (130) (23%)
1.3 3.0%
1.2
Margin % 3.50% (1 bps) 5 bps 1.1 2.5%
1.0 2.0%
0.9
0.8 1.5%
Credit Cards

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13

Apr-13

May-13

Jun-13

Jul-13

Aug-13

Sep-13

Oct-13
NII 1,703 88 5% (95) 183 948 126% 17 931
£m NIM %
Avg Bal £m 63 (4) (6%) 6 5 1 2% 5 5 Credit Cards
5.0%
0.2 4.5%
Margin % 3.26% 35 bps 178 bps 0.2
4.0%
3.5%
0.1 3.0%
2.5%
0.1 2.0%
Currency/Other 1.5%
0.0 1.0%
0.5%
NII 1,637 128 8% (21) 149 (636) (28%) 210 (846) 0.0 0.0%

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13

Apr-13

May-13

Jun-13

Jul-13

Aug-13

Sep-13

Oct-13
Avg Bal £m 55 (1) (1%) 6 5 5 9% 5 6
£m MTAs NIM %
Margin % 3.57% 32 bps (185 bps)
4.0 2.5%

2.0%
MTAs 3.0
1.5%
NII 27,540 (291) (1%) 83 (374) (7,612) (22%) 2,250 (9,862) 2.0
1.0%
Avg Bal £m 2,037 6 0% 5 6 123 6% 5 6 1.0
0.5%
Margin % 1.62% (2 bps) (58 bps) 0.0 0.0%

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13

Apr-13

May-13

Jun-13

Jul-13

Aug-13

Sep-13

Oct-13
Deposits
Deposits NIM %
£m
NII 1,269 (1,258) (50%) 19 (1,278) (32,987) (96%) 2,711 (35,698)
5 6 5 6 0.15%
Avg Bal £m 10,178 78 1% 746 8% 1.0
0.8 0.10%
Margin % 0.01% (2 bps) (42 bps) 0.6 0.05%
0.4
0.00%
0.2
Money Markets/ 0.0 -0.05%

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13

Apr-13

May-13

Jun-13

Jul-13

Aug-13

Sep-13

Oct-13
Other -0.2 -0.10%

NII (3,324) (66) (2%) 7 (73) 122 4% 1,121 (999)

Avg Bal £m 738 (2) (0%) 5 6 (356) (33%) 5 6

ACT NII 2012 ACT Margin ACT NII 2013
Margin % (0.54%) (1 bps) (16 bps)

Total NII 207,681 2,062 1% (241) 2,302 (42,808) (17%) (6,100) (36,707)
6 5 6 6

© Moorad Choudhry 2014 Source: Finance For information 27

Appendix E - Competitor watch (deposits pricing)

Product ABC Bank Market 1st Market 2nd Market 3rd

New Customer Back Book Bank Rate Bank Rate Bank Rate

Instant Access 0.50% 0.10% Syldavia Bank 1.50% Khemed Bank 1.00% Borduria Bank 0.95%
31 Day 1.35% 1.35% ABC Bank 1.35% Tapioca Bank 1.25% Borduria Bank 1.15%
95 Day 1.80% 1.65% Rackham Bank 1.90% ABC Bank 1.80% Carreidas Bank 1.75%
180 Day 1.85% 1.65% Rackham Bank 2.00% UTC Bank 1.95% ABC Bank 1.85%
1Y 1.60% 1.30% UTC Bank 2.25% Pisco Bank 2.05% Carreidas Bank 2.00%
2Y 2.00% 1.70% UTC Bank 2.35% Allan Bank 2.25% Borduria Bank 2.20%
3Y 2.20% 2.00% ICE Bank 2.45% Rackham Bank 2.35% ABC Bank 2.20%
4Y - - Colomb Bank 2.50% CBBC Bank 2.45% Pop Bank 2.35%
5Y 2.75% 2.50% ABC Bank 2.75% Pisco Bank 2.60% Sirius Bank 2.50%

© Moorad Choudhry 2014 28

Appendix F - Interest Rate Risk Management
SIRE VaR, PV01, EAR, Basis Risk & Pipeline

Mortgage VaR
TotalFixed Products (Retail only) VaR
300,000
140,000
250,000
120,000
200,000
100,000
150,000
80,000
Total VaR
100,000 60,000 Total VaR
Indicative
50,000 40,000
Limit Indicative
0 20,000 Limit
Jul-13 Aug-13 Sep-13 Oct-13 0
Jul-13 Aug-13 Sep-13 Oct-13
Fixed Rate Loans (Retail only) VaR

45,000
40,000
35,000
30,000
25,000
20,000 Total VaR
15,000
10,000 Indicative
5,000 Limit
0
Jul-13 Aug-13 Sep-13 Oct-13
Fixed Rate Deposits (Retail only) VaR

30,000

25,000

20,000

15,000
Total VaR
10,000
Indicative
5,000 Limit
0
Jul-13 Aug-13 Sep-13 Oct-13

Source: Bancware. Limits are indicative based on pro-rate of Total Divisional limits

© Moorad Choudhry 2014 Source: Treasury For information 29

 Appendix F - Interest Rate Risk Management
Managed Rate Products
.
The ideal hedging position below shows the roll-off profile were the products to be perfectly hedged across the life of the product, based upon forecasted information.

Retail MTAs Retail Non-Performing Loans

0.600 0.090
0.080
0.500
0.070
0.400 0.060
0.300 0.050
0.040
0.200
0.030
0.100 0.020
0.000 0.010
0-3M 3-6M 6-12M 2Y 3Y 4Y 5Y 0.000
0-3M 3-6M 6-12M 2Y 3Y
Retail Overdrafts
0.045
0.040
0.035
0.030
0.025
0.020
0.015
0.010
0.005
0.000

0-3M 3-6M 6-12M 2Y 3Y

Retail Cards
0.120

0.100
Swap Ideal Hedge
0.080

0.060

0.040

0.020

0.000
NOTE: Development of Bancware is being
undertaken to improve reporting of
0-3M 3-6M 6-12M 2Y 3Y 4Y 5Y
Corporate products at future ALCos
Source: Bancware

© Moorad Choudhry 2014 Source: Treasury For information 30

 Appendix G – Peer analysis
RBS LBG San UK Coventry Yorkshire Co-Op Clydesdale

Report date H1 2012 H1 2012 30-Sep-2012 H1 2012 FY2011 FY2011 H1 2012 30-Sep-2012 -

LT Ratings A / A3 / A A / A2 / A
A+ / A2 / A+ A / A2 / A NR / A3 / A A- / Baa2 / BBB+ NR / A3 / BBB+ BBB+ / A2 / A BBB+ / NR / BBB
(S / M / F) (A- / Baa1 / A)2 (A- / A3 / A)2

A-1 / P-2 / F1 A-1 / P-1 / F1

ST Ratings A-1 / P-1 / F1 A-1 / P-1 / F1 NR / P-2 / F1 A-2 / P-2 / F2 NR / P-2 / F2 A-2 / P-1 / F1 A-2 / NR / F3
(A-2 / P-2 / F1)2 (A-2 / - / F1)2

Regulatory
Capital
Structure

CT1 11.1% 11.3% 12.4% 12.2% 22.8% 12.6% 9.6% 8.4% 12.6%

T1 13.4% 13.0% 16.2% 15.6% 27.8% 14.1% 9.9% 9.6% 15.0%

Total 14.6% 16.6% 18.3% 21.7% 29.6% 15.8% 14.8% 14.9% 18.3%

Total capital £63.4bn £55.1bn £8.4bn £16.8bn £943mn £1.9bn £3.1bn £3.9bn

RWAs £434.7bn £322.5bn £46.1bn £77.4bn £3.2bn £12.0bn £20.7bn £26.4bn

Total loans £434.9bn £528.6bn £157.2bn £198.3bn £19.2bn £27.0bn £34.0bn £24.8bn
Loans-to-
104% 126% 120% 133% 101% 102% 103% 94% 110%
deposits %
NIM 1.92% 1.93% 0.93% 1.32% 0.72% 1.05% 1.10% 2.07% 1.38%
Net Profits (£1,990)mn (£641)mn £136mn £550mn £39.8mn £63.1mn (£45.3)mn (£470)mn
RoE4 N.M. N.M. 4.4% 8.2% 10.0% 7.8% N.M. N.M.
S&P RAC ratio5 6.4% 5.7% 6.1% 7.3% - 11.6% - 8.5% 7.6%

© Moorad Choudhry 2014 Source: Treasury For information 31

 Appendix G – Peer analysis (continued)
Background

The following benchmarking information is presented in response to an action raised at the November AlCo:

081013 – 02 : ABC peer group comparisons to be expanded to include publicly available information on RWA and capital.

Summary

The table overleaf presents a snapshot view of ABC’s capital structure and other key financial metrics against those of our peer
group.

Key points to note:

1. ABC estimated capital is at the low end of the peer range (excluding Co-op). This is sub-optimal given the risks we are
running and our desire to grow.

2. ABC RWAs look high in comparison to peers. This appears to be driven by

 The high concentration of CRE exposure compared to peers;

 The high proportion of corporate vs. residential mortgage exposure compared to peers; and

 The lack of defaulted assets in the Corporate book which flows through into higher RWAs than would normally be
expected.

© Moorad Choudhry 2014 Source: Risk For information 32

ALCO Library
Macro-economic: Market indicators – Spreads and Rates
TED spread:

What is the TED spread?

• The TED spread = 3 𝑚𝑜𝑛𝑡ℎ 𝐿𝐼𝐵𝑂𝑅 𝑟𝑎𝑡𝑒 − 3 𝑚𝑜𝑛𝑡ℎ 𝑇 𝑏𝑖𝑙𝑙 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑟𝑎𝑡𝑒

• The TED spread measures the difference between the yield on the 3-month Treasury Bill (T-bill) and the value of the Eurodollar futures contract—which is based on the 3-month
LIBOR rate

• TED is an acronym formed from T-Bill and ED, the ticker symbol for the Eurodollar futures contract

What does the TED spread imply?

• A rising or high TED spread will often precede a downturn in the stock market because it indicates increasing risk of bank defaults and economic instability as a result of liquidity
being withdrawn

• A falling or low TED spread would indicate low risk of bank defaults and economic stability

• The TED spread fluctuates over time but generally has remained within the range of 10 – 50 bps except in times of financial crisis

• During the subprime mortgage crisis, the TED spread ballooned to between 150-200bps, reaching 300bps at one point

Why is TED spread important for ABC Bank?

• T-bills are considered risk free and LIBOR broadly reflects the risk of lending to the commercial banks, the difference is an indicator of perceived risk in the global economy. An
increase in the TED spread suggests increasing risks and vice versa

10 year swap rates

What is the 10 year swap rate?

• Recognised principal global benchmark for swap rates and spreads for interest rate swaps, published by ICE (Intercontinental Exchange); fixing data used is London 11am

Why is this important for ABC Bank?

• Gives an indication of (pre-credit spread) long term cost of unsecured borrowing

© Moorad Choudhry 2014 Source: Treasury For information 33