Chief Executive’s Report
Key Performance Indicators
Tier 1 Ratio Basel I
Tier 1 Ratio Basel II
Capital discipline
We accept that capital is owned by our shareholders who expect us to treat it as a scarce resource, deploying it to achieve sustainable returns throughout the economic cycle. As the dislocation in financial markets in 2007 has shown, capital strength is also required to cushion against the shocks that are a periodic feature of banking. Whether capital is utilised for growth, or returned to shareholders when surplus, is governed by the stability of target capital ratios and the sustainability of returns that can be generated by further capital deployment.
During 2007, the FSA approved our Advanced Measurement Approach (‘AMA’) operational risk and Advanced Internal Ratings Based (‘AIRB’) credit risk waivers and, as from 1 January 2008, we are now operating under the Basel II capital ratio regime. This advanced capital regime has redefined both the size and nature of the capital resources available to HBOS as well as the level of risk weighted assets. It has not however changed our approach to capital management.