Fair value of financial instruments

12 Months Ended

Dec. 31, 2023

Disclosure of detailed information about financial instruments [abstract]

Fair value of financial instruments

Fair value of financial instruments

Accounting for financial assets and liabilities – fair values

Financial instruments that are held for trading are recognised at fair value through profit or loss. In addition, financial assets are held at

fair value through profit or loss if they do not contain contractual terms that give rise on specified dates to cash flows that are SPPI, or if

the financial asset is not held in a business model that is either (i) a business model to collect the contractual cash flows or (ii) a business

model that is achieved by both collecting contractual cash flows and selling. Subsequent changes in fair value for these instruments are

recognised in the income statement in net investment income, except if reporting it in trading income reduces an accounting

mismatch.

Wherever possible, fair value is determined by reference to a quoted market price for that instrument. For many of the Group’s financial

assets and liabilities, especially derivatives, quoted prices are not available and valuation models are used to estimate fair value. The

models calculate the expected cash flows under the terms of each specific contract and then discount these values back to a present

value. These models use as their basis independently sourced market inputs including, for example, interest rate yield curves, equities

and commodities prices, option volatilities and currency rates.

For financial liabilities measured at fair value, the carrying amount reflects the effect on fair value of changes in own credit spreads

derived from observable market data such as in primary issuance and redemption activity for structured notes.

On initial recognition, it is presumed that the transaction price is the fair value unless there is observable information available in an

active market to the contrary.

For valuations that have made use of unobservable inputs, the difference between the model valuation and the initial transaction price

(Day one profit) is recognised in profit or loss either: on a straight-line basis over the term of the transaction; or over the period until all

inputs will become observable where appropriate; or released in full when previously unobservable inputs become observable.

Various factors influence the availability of observable inputs and these may vary from product to product and change over time.

Factors include the depth of activity in the relevant market, the type of product, whether the product is new and not widely traded in the

marketplace, the maturity of market modelling and the nature of the transaction (bespoke or generic). To the extent that valuation is

based on models or inputs that are not observable in the market, the determination of fair value can be more subjective, dependent on

the significance of the unobservable input to the overall valuation. Unobservable inputs are determined based on the best information

available, for example by reference to similar assets, similar maturities or other analytical techniques.

The sensitivity of valuations used in the financial statements to possible changes in significant unobservable inputs is shown on page

368.

Critical accounting estimates and judgements

The valuation of financial instruments often involves a significant degree of judgement and complexity, in particular where valuation

models make use of unobservable inputs (‘Level 3’ assets and liabilities). This note provides information on these instruments, including

the related unrealised gains and losses recognised in the period, a description of significant valuation techniques and unobservable

inputs, and a sensitivity analysis.

Climate-related risks are assumed to be included in the fair values of assets and liabilities traded in active markets. Within less active

markets, for counterparties and instruments identified as being more susceptible to climate change risk, an impact assessment was

performed through increasing their probability of default. The change in valuation of the assets and liabilities from this assessment was

sufficiently immaterial to necessitate any amendment to the reported year end valuations.

Valuation

Assets and liabilities according to a hierarchy that reflects the observability of significant market inputs. The three levels of the fair value

hierarchy are defined below with judgement applied in determining the boundary between Level 2 and 3 classification.

Quoted market prices – Level 1

Assets and liabilities are classified as Level 1 if their value is observable in an active market. Such instruments are valued by reference to

unadjusted quoted prices for identical assets or liabilities in active markets where the quoted price is readily available, and the price

represents actual and regularly occurring market transactions. An active market is one in which transactions occur with sufficient

volume and frequency to provide pricing information on an ongoing basis.

Valuation technique using observable inputs – Level 2

Assets and liabilities classified as Level 2 have been valued using models whose inputs are observable either directly or indirectly.

Valuations based on observable inputs include assets and liabilities such as swaps and forwards which are valued using market standard

pricing techniques, and options that are commonly traded in markets where all the inputs to the market standard pricing models are

observable. For certain instruments that derive a fair value using unobservable inputs that are not considered significant, then the asset

or liability may be classified as Level 2.

Valuation technique using significant unobservable inputs – Level 3

Assets and liabilities are classified as Level 3 if their valuation incorporates significant inputs that are not based on observable market

data (unobservable inputs). A valuation input is considered observable if it can be directly observed from transactions in an active

market, or if there is compelling external evidence demonstrating an executable exit price. Unobservable input levels are generally

determined via reference to observable inputs, historical observations or using other analytical techniques.

The following table shows the Group’s assets and liabilities that are held at fair value disaggregated by valuation technique (fair value

hierarchy) and balance sheet classification:

Assets and liabilities held at fair value
	2023				2022
	Valuation technique using				Valuation technique using
	Level 1	Level 2	Level 3	Total	Level 1	Level 2	Level 3	Total
As at 31 December	£m	£m	£m	£m	£m	£m	£m	£m
Trading portfolio assets	94,658	73,438	6,509	174,605	62,478	64,855	6,480	133,813
Financial assets at fair value through the income statement	5,831	192,571	8,249	206,651	5,720	198,723	9,125	213,568
Derivative financial assets	107	253,189	3,540	256,836	10,054	287,152	5,174	302,380
Financial assets at fair value through other comprehensive income	30,247	40,511	1,078	71,836	20,704	44,347	11	65,062
Investment property	—	—	2	2	—	—	5	5
Total assets	130,843	559,709	19,378	709,930	98,956	595,077	20,795	714,828
Trading portfolio liabilities	(29,274)	(29,027)	(368)	(58,669)	(44,128)	(28,740)	(56)	(72,924)
Financial liabilities designated at fair value	(117)	(296,200)	(1,222)	(297,539)	(133)	(270,454)	(1,050)	(271,637)
Derivative financial liabilities	(81)	(245,310)	(4,653)	(250,044)	(10,823)	(272,434)	(6,363)	(289,620)
Total liabilities	(29,472)	(570,537)	(6,243)	(606,252)	(55,084)	(571,628)	(7,469)	(634,181)

The following table shows the Group’s Level 3 assets and liabilities that are held at fair value disaggregated by product type:

Level 3 assets and liabilities held at fair value by product type
	2023		2022
	Assets	Liabilities	Assets	Liabilities
	£m	£m	£m	£m
Interest rate derivatives	2,211	(1,701)	2,362	(2,858)
Foreign exchange derivatives	111	(91)	1,513	(1,474)
Credit derivatives	241	(820)	290	(603)
Equity derivatives	977	(2,041)	1,009	(1,428)
Corporate debt	1,867	(352)	1,677	(49)
Reverse repurchase and repurchase agreements	209	(517)	37	(434)
Loans	10,614	—	11,233	—
Private equity investments	1,375	(10)	1,291	(8)
Other1	1,773	(711)	1,383	(615)
Total	19,378	(6,243)	20,795	(7,469)

Note

1Other includes funds and fund-linked products, issued debt, government and government sponsored debt, asset backed securities, equity cash products and investment property.

Valuation techniques and sensitivity analysis

Sensitivity analysis is performed on products with significant unobservable inputs (Level 3) to generate a range of reasonably possible

alternative valuations. The sensitivity methodologies applied take account of the nature of the valuation techniques used, as well as the

availability and reliability of observable proxy and historical data and the impact of using alternative models.

Sensitivities are dynamically calculated on a monthly basis. The calculation is based on range or spread data of a reliable reference

source or a scenario based on relevant market analysis alongside the impact of using alternative models. Sensitivities are calculated

without reflecting the impact of any diversification in the portfolio.

The valuation techniques used, observability and sensitivity analysis for material products within Level 3, are described below.

Interest rate derivatives

Description: Derivatives linked to interest rates or inflation indices. The category includes futures, interest rate and inflation swaps,

swaptions, caps, floors, inflation options, balance guaranteed swaps and other exotic interest rate derivatives.

Valuation: Interest rate and inflation derivatives are generally valued using curves of forward rates constructed from market data to

project and discount the expected future cash flows of trades. Instruments with optionality are valued using volatilities implied from

market inputs, and use industry standard or bespoke models depending on the product type.

Observability: In general, inputs are considered observable up to liquid maturities which are determined separately for each input and

underlying. Unobservable inputs are generally set by referencing liquid market instruments and applying extrapolation techniques or

inferred via another reasonable method.

Foreign exchange derivatives

Description: Derivatives linked to the foreign exchange (FX) market. The category includes FX forward contracts, FX swaps and FX

options. The majority are traded as over the counter (OTC) derivatives.

Valuation: FX derivatives are valued using industry standard and bespoke models depending on the product type. Valuation inputs

include FX rates, interest rates, FX volatilities, interest rate volatilities, FX interest rate correlations and others as appropriate.

Observability: FX correlations, forwards and volatilities are generally observable up to liquid maturities which are determined separately

for each input and underlying. Unobservable inputs are set by referencing liquid market instruments and applying extrapolation

techniques, or inferred via another reasonable method.

Credit derivatives

Description: Derivatives linked to the credit spread of a referenced entity, index or basket of referenced entities or a pool of referenced

assets (e.g. a securitised product). The category includes single name and index credit default swaps (CDS) and total return swaps

(TRS).

Valuation: CDS are valued on industry standard models using curves of credit spreads as the principal input. Credit spreads are observed

directly from broker data, third party vendors or priced to proxies.

Observability: CDS contracts referencing entities that are actively traded are generally considered observable. Other valuation inputs

are considered observable if products with significant sensitivity to the inputs are actively traded in a liquid market. Unobservable

valuation inputs are generally determined with reference to recent transactions or inferred from observable trades of the same issuer

or similar entities.

Equity derivatives

Description: Exchange traded or OTC derivatives linked to equity indices and single names. The category includes vanilla and exotic

equity products.

Valuation: Equity derivatives are valued using industry standard models. Valuation inputs include stock prices, dividends, volatilities,

interest rates, equity repurchase curves and, for multi-asset products, correlations.

Observability: In general, valuation inputs are observable up to liquid maturities which are determined separately for each input and

underlying. Unobservable inputs are set by referencing liquid market instruments and applying extrapolation techniques, or inferred via

another reasonable method.

Corporate debt

Description: Primarily corporate bonds.

Valuation: Corporate bonds are valued using observable market prices sourced from broker quotes, inter-dealer prices or other reliable

pricing sources.

Observability: Prices for actively traded bonds are considered observable. Unobservable bonds prices are generally determined by

reference to bond yields or CDS spreads for actively traded instruments issued by or referencing the same (or a similar) issuer.

Reverse repurchase and repurchase agreements

Description: Includes securities purchased under resale agreements, securities sold under repurchase agreements, and other similar

secured lending agreements. The agreements are primarily short-term in nature.

Valuation: Repurchase and reverse repurchase agreements are generally valued by discounting the expected future cash flows using

industry standard models that incorporate market interest rates and repurchase rates, based on the specific details of the transaction.

Observability: Inputs are deemed observable up to liquid maturities or for consensus pricing with low pricing-range and are determined

based on the specific features of the transaction. Unobservable inputs are generally set by referencing liquid market instruments and

applying extrapolation techniques, or inferred via another reasonable method.

Loans

Description: A drawn lending facility issued to corporate clients and customers.

Valuation:  Loans are valued either using a price-based approach, or  through  models that discount expected future cash flows based

on interest rates and loan spreads.

Observability: Within this loan population, the price or loan spread may be  generally unobservable. 

Private equity investments

Description: Includes investments in equity holdings in operating companies not quoted on a public exchange.

Valuation: Private equity investments are valued in accordance with the ‘International Private Equity and Venture Capital Valuation

Guidelines’ which require the use of a number of individual pricing benchmarks such as the prices of recent transactions in the same or

similar entities, discounted cash flow analysis and comparison with the earnings or revenue multiples of listed companies. While the

valuation of unquoted equity instruments is subjective by nature, the relevant methodologies are commonly applied by other market

participants and have been consistently applied over time.

Observability: Inputs are considered observable if there is active trading in a liquid market of products with significant sensitivity to the

inputs. Unobservable inputs include earnings or revenue estimates, multiples of comparative companies, marketability discounts and

discount rates.

Other

Description: Other includes funds and fund-linked products, issued debt, government sponsored debt, asset backed securities, equity

cash products  and  investment property.

Assets and liabilities reclassified between Level 1 and Level 2

During the period, there were no material transfers between Level 1 and Level 2 (2022: there were no material transfers between Level

1 and Level 2).

Level 3 movement analysis

The following table summarises the movements in the Level 3 balances during the period. Transfers have been reflected as if they had

taken place at the beginning of the year.

Asset and liability transfers between Level 2 and Level 3 are primarily due to i) an increase or decrease in observable market activity

related to an input or ii) a change in the significance of the unobservable input, with assets and liabilities classified as Level 3 if an

unobservable input is deemed significant.

Analysis of movements in Level 3 assets and liabilities
	As at 1 January 2023					Total gains and (losses) in the period recognised in the income statement		Total gains or (losses) recognised in OCI	Transfers		As at 31 December 2023
		Purchases	Sales	Issues	Settlements	Trading income2	Other income		In	Out
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Corporate debt	597	352	(146)	—	(220)	76	—	—	56	(34)	681
Loans	4,837	1,425	(1,734)	—	(382)	(34)	—	—	384	(27)	4,469
Other	1,046	1,617	(1,143)	—	—	(31)	—	—	619	(749)	1,359
Trading portfolio assets	6,480	3,394	(3,023)	—	(602)	11	—	—	1,059	(810)	6,509
Corporate debt	1,080	40	(145)	—	—	10	(8)	—	—	(89)	888
Loans	6,396	3,630	(3,263)	—	(1,361)	176	(14)	—	213	(165)	5,612
Private equity investments	1,284	97	(26)	—	(6)	(64)	86	—	—	—	1,371
Reverse repurchase and repurchase agreements	37	166	—	—	—	6	—	—	—	—	209
Other	328	33	(1)	—	(62)	(19)	(3)	—	26	(133)	169
Financial assets at fair value through the income statement	9,125	3,966	(3,435)	—	(1,429)	109	61	—	239	(387)	8,249
Corporate debt	—	193	—	—	—	—	—	—	105	—	298
Loans	—	533	—	—	—	—	—	—	—	—	533
Private equity investments	7	—	—	—	—	—	—	(3)	—	—	4
Other	4	200	—	—	(3)	—	—	—	42	—	243
Assets at fair value through other comprehensive income	11	926	—	—	(3)	—	—	(3)	147	—	1,078
Investment properties	5	—	(4)		—	—	1	—	—	—	2
Trading portfolio liabilities	(56)	(367)	45	—	—	—	—	—	—	10	(368)
Financial liabilities designated at fair value	(1,050)	(40)	—	(403)	—	(38)	(3)	—	(147)	459	(1,222)
Interest rate derivatives	(496)	130	(31)	—	58	87	—	—	326	436	510
Foreign exchange derivatives	39	—	—	—	37	(15)	—	—	11	(52)	20
Credit derivatives	(313)	(351)	56	—	(15)	(2)	—	—	51	(5)	(579)
Equity derivatives	(419)	(419)	(1)	—	3	(162)	—	—	—	(66)	(1,064)
Net derivative financial instruments1	(1,189)	(640)	24	—	83	(92)	—	—	388	313	(1,113)
Total	13,326	7,239	(6,393)	(403)	(1,951)	(10)	59	(3)	1,686	(415)	13,135

Analysis of movements in Level 3 assets and liabilities
	As at 1 January 2022					Total gains and (losses) in the period recognised in the income statement		Total gains or (losses) recognised in OCI	Transfers		As at 31 December 2022
		Purchases	Sales	Issues	Settlements	Trading income2	Other income		In	Out
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Corporate debt	389	394	(182)	—	(18)	(39)	—	—	87	(34)	597
Loans	758	7,009	(2,635)	—	(19)	(264)	—	—	10	(22)	4,837
Other	1,134	665	(412)	—	(298)	(43)	—	—	275	(275)	1,046
Trading portfolio assets	2,281	8,068	(3,229)	—	(335)	(346)	—	—	372	(331)	6,480
Corporate debt	816	405	—	—	(189)	48	—	—	—	—	1,080
Loans	7,608	8,689	(7,559)	—	(1,485)	(804)	—	—	49	(102)	6,396
Private equity investments	1,095	192	(64)	—	(24)	95	(66)	—	56	—	1,284
Reverse repurchase and repurchase agreements	13	—	—	—	—	24	—	—	—	—	37
Other	180	127	—	—	(2)	3	3	—	17	—	328
Financial assets at fair value through the income statement	9,712	9,413	(7,623)	—	(1,700)	(634)	(63)	—	122	(102)	9,125
Private equity investments	—	—	—	—	—	—	—	1	6	—	7
Other	38	—	—	—	(32)	—	—	(2)	—	—	4
Assets at fair value through other comprehensive income	38	—	—	—	(32)	—	—	(1)	6	—	11
Investment properties	7	—	(1)	—	—	—	(1)	—	—	—	5
Trading portfolio liabilities	(27)	(23)	8	—	—	9	—	—	(27)	4	(56)
Financial liabilities designated at fair value	(410)	(286)	—	(98)	82	70	—	—	(448)	40	(1,050)
Interest rate derivatives	(260)	(216)	—	—	54	(467)	—	—	431	(38)	(496)
Foreign exchange derivatives	2	—	—	—	(6)	27	—	—	—	16	39
Credit derivatives	(386)	(4)	(2)	—	57	23	—	—	11	(12)	(313)
Equity derivatives	(1,405)	(213)	—	—	333	306	—	—	(11)	571	(419)
Net derivative financial instruments1	(2,049)	(433)	(2)	—	438	(111)	—	—	431	537	(1,189)
Total	9,552	16,739	(10,847)	(98)	(1,547)	(1,012)	(64)	(1)	456	148	13,326

Notes

1The derivative financial instruments are represented on a net basis. On a gross basis, derivative financial assets are £3,540m (2022: £5,174m) and derivative financial liabilities are

£4,653m (2022: £6,363m).

2 Trading income represents gains and (losses) on level 3 financial instruments which in the majority are offset by losses and gains on financial instruments disclosed in level 2.

Unrealised gains and losses on Level 3 financial assets and liabilities

The following table discloses the unrealised gains and losses recognised in the year arising on Level 3 financial assets and liabilities held

at year end.

Unrealised gains and (losses) recognised during the period on Level 3 assets and liabilities held at year end
	2023				2022
	Income statement		Other compre- hensive income	Total	Income statement		Other compre- hensive income	Total
	Trading income1	Other income			Trading income1	Other income
As at 31 December	£m	£m	£m	£m	£m	£m	£m	£m
Trading portfolio assets	10	—	—	10	(290)	—	—	(290)
Financial assets at fair value through the income statement	113	72	—	185	(551)	(66)	—	(617)
Fair value through other comprehensive income	—	—	(3)	(3)	—	—	1	1
Investment property	—	1	—	1	—	(1)	—	(1)
Trading portfolio liabilities	—	—	—	—	8	—	—	8
Financial liabilities designated at fair value	(38)	(3)	—	(41)	55	—	—	55
Net derivative financial instruments	(107)	—	—	(107)	(80)	—	—	(80)
Total	(22)	70	(3)	45	(858)	(67)	1	(924)

Note

1Trading income represents gains and (losses) on level 3 financial instruments which in the majority are offset by losses and gains on financial instruments disclosed in level 2.

Significant unobservable inputs

The following table discloses the valuation techniques and significant unobservable inputs for material products recognised at fair value

and classified as Level 3 along with the range of values used for those significant unobservable inputs:

	Valuation technique(s)1	Significant unobservable inputs	2023 Range		2022 Range
			Min	Max	Min	Max	Units2
Derivative financial instruments3
Interest rate derivatives	Discounted cash flows	Inflation forwards	4	7	3	5	%
		Credit spread	15	1,672	17	2,159	bps
		Yield	1	7	(3)	56	%
		Growth curve	(1)	2	—	—	%
	Correlation model	Inflation forwards	—	—	(20)	(13)	%
	Option model	Inflation volatility	66	257	49	315	bps vol
		Interest rate volatility	26	515	36	430	bps vol
		FX - IR correlation	(20)	78	(20)	78	%
		IR - IR correlation	(20)	98	12	99	%
Credit derivatives	Discounted cash flows	Credit spread	1	765	3	2,943	bps
	Comparable pricing	Price	46	99	79	92	points
Equity derivatives	Option model	Equity volatility	5	138	3	140	%
		Equity - equity correlation	40	100	40	100	%
	Discounted cash flow	Discount margin	(238)	110	(205)	634	bps
Non-derivative financial instruments
Loans	Discounted cash flows	Loan spread	40	802	50	801	bps
		Credit spread	186	870	200	426	bps
		Yield	7	18	5	34	%
	Comparable pricing	Price	0	287	0	101	points
Private equity investments	EBITDA multiple	EBITDA multiple	15	17	11	15	Multiple
	Earnings multiple	Earnings multiple	3	25	4	23	Multiple
	Discounted cash flow	Credit spread	380	630	496	559	bps
		Discount margin	8	10	8	10	%
Corporate debt	Comparable pricing	Price	—	352	0	232	points
	Discounted cash flows	Loan spread	—	—	229	834	bps
Reverse repurchase and repurchase agreements	Discounted cash flows	Repo spread	385	468	321	502	bps

Notes

1A range has not been provided for Net Asset Value as there would be a wide range reflecting the diverse nature of the positions.

2The units used to disclose ranges for significant unobservable inputs are percentages, points and basis points. Points are a percentage of par; for example, 100 points equals 100% of

par. A basis point equals 1/100th of 1%; for example, 150 basis points equals 1.5%.

3Certain derivative instruments are classified as Level 3 due to a significant unobservable credit spread input into the calculation of the Credit Valuation Adjustment for the instruments.

The range of significant unobservable credit spreads is between 29-1,672bps (2022: 17-2,159bps).

The following section describes the significant unobservable inputs identified in the table above, and the sensitivity of fair value

measurement of the instruments categorised as Level 3 assets or liabilities to increases in significant unobservable inputs. Where

sensitivities are described, the inverse relationship will also generally apply.

Where reliable interrelationships can be identified between significant unobservable inputs used in fair value measurement, a

description of those interrelationships is included below.

Forwards

A price or rate that is applicable to a financial transaction that will take place in the future.

In general, a significant increase in a forward in isolation will result in a fair value increase for the contracted receiver of the underlying

(currency, bond, commodity, etc.), but the sensitivity is dependent on the specific terms of the instrument.

Credit spread

Credit spreads typically represent the difference in yield between an instrument and a benchmark security or reference rate. Credit

spreads reflect the additional yield that a market participant demands for taking on exposure to the credit risk of an instrument and

form part of the yield used in a discounted cash flow calculation.

In general, a significant increase in credit spread in isolation will result in a movement in a fair value decrease for a cash asset.

For a derivative instrument, a significant increase in credit spread in isolation can result in a fair value increase or decrease depending on

the specific terms of the instrument.

Volatility

Volatility is a measure of the variability or uncertainty in return for a given derivative underlying. It is an estimate of how much a particular

underlying instrument input or index will change in value over time. In general, volatilities are implied from observed option prices. For

unobservable options the implied volatility may reflect additional assumptions about the nature of the underlying risk, and the strike/

maturity profile of a specific contract.

In general a significant increase in volatility in isolation will result in a fair value increase for the holder of a simple option, but the

sensitivity is dependent on the specific terms of the instrument.

There may be interrelationships between unobservable volatilities and other unobservable inputs (e.g. when equity prices fall, implied

equity volatilities generally rise) but these are generally specific to individual markets and may vary over time.

Correlation

Correlation is a measure of the relationship between the movements of two variables. Correlation can be a significant input into

valuation of derivative contracts with more than one underlying instrument. Credit correlation generally refers to the correlation

between default processes for the separate names that make up the reference pool of a CDO structure.

A significant increase in correlation in isolation can result in a fair value increase or decrease depending on the specific terms of the

instrument.

Comparable price

Comparable instrument prices are used in valuation by calculating an implied yield (or spread over a liquid benchmark) from the price of a

comparable observable instrument, then adjusting that yield (or spread) to account for relevant differences such as maturity or credit

quality. Alternatively, a price-to-price basis can be assumed between the comparable and unobservable instruments in order to

establish a value.

Loans includes a portfolio of loans extended to clients within the Group’s leveraged finance business. Leveraged finance loans are

originated where Barclays provide financing commitments to clients to facilitate strategic transactions such as leverage buyouts and

acquisitions. The sensitivity of the portfolio to unobservable inputs is judgmental reflecting their illiquid nature and the significance of

unobservable price inputs to the valuation.

In general, a significant increase in comparable price in isolation will result in an increase in the price of the unobservable instrument. For

derivatives, a change in the comparable price in isolation can result in a fair value increase or decrease depending on the specific terms

of the instrument.

Loan spread

Loan spreads typically represent the difference in yield between an instrument and a benchmark security or reference rate. Loan

spreads typically reflect credit quality, the level of comparable assets such as gilts and other factors, and form part of the yield used in a

discounted cash flow calculation.

Loans containing unobservable input Loan Spreads into their valuation primarily consist of long-dated fixed rate loans extended to

counterparties in the UK Education, Social Housing and Local Authority sectors (ESHLA). The loans are categorised as Level 3 in the fair

value hierarchy due to their illiquid nature and the significance of unobservable loan spreads to the valuation. Valuation uncertainty

arises from the long-dated nature of the portfolio, the lack of secondary market in the loans and the lack of observable loan spreads.

The majority of ESHLA loans are to borrowers in heavily regulated sectors that are considered extremely low credit risk, and have a

history of near zero defaults since inception. While the overall loan spread range is from 40bps to 307bps (2022: 50bps to 589bps), the

vast majority of spreads are concentrated towards the bottom end of this range, with 98% of the loan notional being valued with

spreads less than 200bps for the current period.

In general, a significant increase in loan spreads in isolation will result in a fair value decrease for a loan.

EBITDA multiple

EBITDA multiple is the ratio of the valuation of the investment to the earnings before interest, taxes, depreciation and amortisation.

In general, a significant increase in the multiple will result in a fair value increase for an investment.

Earnings multiple

Earnings or Revenue multiple is the ratio of the valuation of the investment to the earnings or revenue. In general, a significant increase

in the multiple will result in a fair value increase for an investment.

Sensitivity analysis of valuations using unobservable inputs
	2023				2022
	Favourable changes		Unfavourable changes		Favourable changes		Unfavourable changes
	Income statement	Equity	Income statement	Equity	Income statement	Equity	Income statement	Equity
	£m	£m	£m	£m	£m	£m	£m	£m
Interest rate derivatives	78	—	(158)	—	119	—	(155)	—
Foreign exchange derivatives	4	—	(9)	—	16	—	(22)	—
Credit derivatives	27	—	(32)	—	79	—	(71)	—
Equity derivatives	142	—	(226)	—	161	—	(168)	—
Corporate debt	34	—	(22)	—	45	—	(27)	—
Loans	612	2	(801)	(2)	338	—	(551)	—
Private equity investments	263	1	(263)	(1)	268	1	(281)	(1)
Other1	126	1	(118)	(1)	49	—	(52)	—
Total	1,286	4	(1,629)	(4)	1,075	1	(1,327)	(1)

Note

1Other includes, Equity Cash Products,  Fund and Fund Linked, Government and Government Sponsored Debt, Asset backed securities.

The effect of stressing unobservable inputs to a range of reasonably possible alternatives, alongside considering the impact of using

alternative models, would be to increase fair values by up to £1,290m (2022: £1,076m) or to decrease fair values by up to £1,633m

(2022: £1,328m) with substantially all the potential effect impacting profit and loss. Unfavourable changes shown in the table above are

partly provided for through the capital and prudential valuation adjustment framework.

Fair value adjustments

Key balance sheet valuation adjustments are quantified below:

	2023	2022
	£m	£m
Exit price adjustments derived from market bid-offer spreads	(569)	(577)
Uncollateralised derivative funding	(4)	(11)
Derivative credit valuation adjustments	(209)	(319)
Derivative debit valuation adjustments	144	208

Exit price adjustments derived from market bid-offer spreads

The Group uses mid-market pricing where it is a market maker and has the ability to transact at, or better than, mid price (which is the

case for certain equity, bond and vanilla derivative markets). For other financial assets and liabilities, bid-offer adjustments are recorded

to reflect the exit level for the expected close out strategy. The methodology for determining the bid-offer adjustment for a derivative

portfolio involves calculating the net risk exposure by offsetting long and short positions by strike and term in accordance with the risk

management and hedging strategy.

Bid-offer levels are generally derived from market quotes such as broker data. Less liquid instruments may not have a directly

observable bid-offer level. In such instances, an exit price adjustment may be derived from an observable bid-offer level for a

comparable liquid instrument, or determined by calibrating to derivative prices, or by scenario or historical analysis.

Exit price adjustments derived from market bid-offer spreads have decreased by £8m to £(569)m.

Discounting approaches for derivative instruments

Collateralised

In line with market practice, the methodology for discounting collateralised derivatives takes into account the nature and currency of

the collateral that can be posted within the relevant credit support annex (CSA). The CSA aware discounting approach recognises the

‘cheapest to deliver’ option that reflects the ability of the party posting collateral to change the currency of the collateral.

Uncollateralised

A fair value adjustment of £(4)m is applied to account for the impact of incorporating the cost of funding into the valuation of

uncollateralised and partially collateralised derivative portfolios and collateralised derivatives where the terms of the agreement do not

allow the rehypothecation of collateral received. The  derivative funding adjustment  has decreased by £7m to £(4)m .

Derivative credit and debit valuation adjustments

Derivative credit valuation adjustments and Derivative debit valuation adjustments are incorporated into derivative valuations to reflect

the impact on fair value of counterparty credit risk and Barclays’ own credit quality respectively. These adjustments are calculated for

uncollateralised and partially collateralised derivatives across all asset classes. Derivative credit valuation adjustments and Derivative

debit valuation adjustments are calculated using estimates of exposure at default, probability of default and recovery rates, at a

counterparty level. Counterparties include (but are not limited to) corporates, sovereigns and sovereign agencies and supranationals.

Exposure at default is generally estimated through the simulation of underlying risk factors through approximating with a more vanilla

structure, or by using current or scenario-based mark to market as an estimate of future exposure.

Probability of default and recovery rate information is generally sourced from the CDS markets. Where this information is not available,

or considered unreliable, alternative approaches are taken based on mapping internal counterparty ratings onto historical or market-

based default and recovery information.

Derivative credit valuation adjustments decreased by £110m to £(209)m as a result of tightening input counterparty credit spreads.

Derivative debit valuation adjustments decreased by £64m to £144m as a result of tightening input Barclays Bank PLC credit spreads .

Correlation between counterparty credit and underlying derivative risk factors, termed ‘wrong-way,’ or ‘right-way’ risk, is not

systematically incorporated into the derivative credit valuation adjustments calculation but is adjusted where the underlying exposure is

directly related to the counterparty.

Barclays continues to monitor market practices and activity to ensure the approach to uncollateralised derivative valuation remains

appropriate.

Portfolio exemptions

The Group uses the portfolio exemption in IFRS 13 Fair Value Measurement to measure the fair value of groups of financial assets and

liabilities. Instruments are measured using the price that would be received to sell a net long position (i.e. an asset) for a particular risk

exposure or to transfer a net short position (i.e. a liability) for a particular risk exposure in an orderly transaction between market

participants at the balance sheet date under current market conditions. Accordingly, the Group measures the fair value of the group of

financial assets and liabilities consistently with how market participants would price the net risk exposure at the measurement date.

Unrecognised gains as a result of the use of valuation models using unobservable inputs

The amount that has yet to be recognised in income that relates to the difference between the transaction price (the fair value at initial

recognition) and the amount that would have arisen had valuation models using unobservable inputs been used on initial recognition,

less amounts subsequently recognised, is £205m (2022: £126m) for financial instruments measured at fair value and £192m (2022:

£216m) for financial instruments carried at amortised cost. There are additions and FX loss of £136m (2022: £59m additions and FX

gains), and amortisation and releases of £57m (2022: £66m) for financial instruments measured at fair value and additions of £0m

(2022: £0m) and amortisation and releases of £24m (2022: £14m) for financial instruments measured at amortised cost.

Third-party credit enhancements

Structured and brokered certificates of deposit issued by Barclays are insured up to $250,000 per depositor by the Federal Deposit

Insurance Corporation (FDIC) in the US. The FDIC is funded by premiums that Barclays and other banks pay for deposit insurance

coverage. The carrying value of these issued certificates of deposit that are designated under the IFRS 9 fair value option includes this

third party credit enhancement. The on-balance sheet value of these brokered certificates of deposit amounted to £5,162m (2022:

£5,197m).

Comparison of carrying amounts and fair values for assets and liabilities not held at fair value

The following table summarises the fair value of financial assets and liabilities measured at amortised cost on the Group’s balance

sheet:

	2023					2022
	Carrying amount	Fair value	Level 1	Level 2	Level 3	Carrying amount	Fair value	Level 1	Level 2	Level 3
As at 31 December	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Financial assets
Debt securities at amortised cost	56,749	55,437	13,976	39,014	2,447	45,487	44,512	9,952	33,285	1,275
Loans and advances at amortised cost	342,747	334,706	5,854	80,533	248,319	353,292	347,149	5,165	79,868	262,116
Reverse repurchase agreements and other similar secured lending	2,594	2,594	—	2,594	—	776	776	—	776	—
Assets included in disposal groups classified as held for sale	3,855	3,855	—	3,855	—	—	—	—	—	—
Financial liabilities
Deposits at amortised cost	(538,789)	(538,502)	(382,345)	(150,757)	(5,400)	(545,782)	(545,738)	(426,016)	(116,157)	(3,565)
Repurchase agreements and other similar secured borrowing	(41,601)	(41,601)	—	(41,601)	—	(27,052)	(27,054)	—	(27,054)	—
Debt securities in issue	(96,825)	(98,123)	—	(95,999)	(2,124)	(112,881)	(113,276)	—	(110,151)	(3,125)
Subordinated liabilities	(10,494)	(10,803)	—	(10,608)	(195)	(11,423)	(11,474)	—	(11,254)	(220)
Liabilities included in disposal groups classified as held for sale	(3,078)	(3,078)	—	(3,078)	—	—	—	—	—	—

The fair value is an estimate of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction

between market participants at the measurement date. As a wide range of valuation techniques are available, it may not be appropriate

to directly compare this fair value information to independent market sources or other financial institutions. Different valuation

methodologies and assumptions can have a significant impact on fair values which are based on unobservable inputs.

Financial assets

Loans and advances at amortised cost

The fair value of loans and advances, for the purpose of this disclosure, is derived from discounting expected cash flows in a way that

reflects the current market price for lending to issuers of similar credit quality. Where market data or credit information on the

underlying borrowers is unavailable, a number of proxy/extrapolation techniques are employed to determine the appropriate discount

rates. For 2023, the fair value is lower than carrying value mainly on fixed rate products driven by rising interest rates. The majority will be

part of a wider portfolio which includes fair valued instruments that are not presented in this table.

Reverse repurchase agreements and other similar secured borrowing

The fair value of reverse repurchase agreements approximates carrying amount as these balances are generally short dated and fully

collateralised.

Financial liabilities

Deposits at amortised cost

In many cases, the fair value disclosed approximates carrying value because the instruments are short term in nature or have interest

rates that reprice frequently, such as customer accounts and other deposits and short-term debt securities.

The fair value for deposits with longer-term maturities, mainly time deposits, are estimated using discounted cash flows applying either

market rates or current rates for deposits of similar remaining maturities. Consequently, the fair value discount is minimal.

Repurchase agreements and other similar secured borrowing

The fair value of repurchase agreements approximates carrying amounts as these balances are generally short dated.

Debt securities in issue

Fair values of other debt securities in issue are based on quoted prices where available, or where the instruments are short dated,

carrying amount approximates fair value.

Subordinated liabilities

Fair values for dated and undated convertible and non-convertible loan capital are based on quoted market rates for the issuer

concerned or issuers with similar terms and conditions.