Desarrollo del plan de acción

Cash 46 37

Balances with central banks 2,918 4,088

Total cash balances included in cash and cash equivalents 2,964 4,125

Loans and advances to banks 6,312 12,824

Less: amounts with a maturity of three months or more (4,185) (11,031)

Total loans and advances to banks included in cash and cash equivalents 2,127 1,793

Total cash and cash equivalents 5,091 5,918

Due from the Parent 917 615

13 Derivative financial instruments

The Group’s utilisation of objectives and policies in relation to managing the risks that arise in connection with derivatives, are included in the Risk Management section, on pages 30 to 68. The notional amounts of certain types of financial instruments do not necessarily indicate the amounts of future cash flows involved or the current fair value of the instruments and, therefore, do not indicate the Group’s exposure to credit risk. The derivative instruments become assets or liabilities as a result of fluctuations in market rates or prices relative to their terms.

In December 2013 the Group commenced the process of moving from a gross flow cash hedging model to a derivatives hedging model, principally for interest rate risk management, and this process continued during 2014. As a result, £6.8 billion of balances owed to the Parent and £6.7 billion of balances owed from the Parent were repaid during 2014. In place of this, the Group entered into new derivative transactions with the Parent. The Group has applied hedge accounting to the majority of these derivatives, which are classified as held for hedging in the table below.

The Group also holds certain derivatives to which hedge accounting is not applied and these are considered to be held for trading in the table below. These primarily include foreign exchange (FX) forward contracts with customers, with a corresponding FX contract to hedge FX risk with the Parent.

Contract / notional Fair Value

amount Assets Liabilities 31 December 2014 £m £m £m

Derivatives held for trading

Foreign exchange derivatives

Currency forwards 358 3 8 Currency forwards – with the Parent 483 8 3

Total foreign exchange derivatives held for trading 841 11 11

Interest rate derivatives

Interest rate swaps - with Parent 334 1 1

Total interest rate derivatives held for trading 334 1 1

Derivatives held as fair value hedges

Interest rate swaps - with the Parent 3,512 8 52

Derivatives held as cash flow hedges

Interest rate swaps - with the Parent 4,821 39

-Total derivative assets / liabilities held for hedging 8,333 47 52

Total derivative assets / liabilities 9,508 59 64

Contract / notional Fair Value

amount Assets Liabilities 31 December 2013 £m £m £m

Derivatives held for trading

Foreign exchange derivatives

Currency forwards 460 7 4 Currency forwards – with the Parent 461 4 7

Total foreign exchange derivatives held for trading 921 11 11

Interest rate derivatives

Interest rate swaps - with Parent - - -Total interest rate derivatives held for trading - -

-Derivatives held as fair value hedges

Interest rate swaps - with the Parent 381 -

-Derivatives held as cash flow hedges

Interest rate swaps - with the Parent 864 - -

Total derivative assets / liabilities held for hedging 1,245 -

-Total derivative assets / liabilities 2,166 11 11

As set out in the risk management policy on page 39, the Group uses netting arrangements and collateral agreements to reduce its

C o n s o lid a te d F in a n c ia l S ta te m e n ts R is k M a n a g e m e n t G o v e rn a n c e B a n k F in a n c ia l S ta te m e n ts n

C o n s o lid a te d F in a n c ia l S ta te m e n ts R is k M a n a g e m e n t ie w G o v e rn a n c e B a n k F in a n c ia l S ta te m e n ts O th e In fo rm a

• £3 million (31 December 2013: £7 million) are not covered under CSA and ISDA arrangements or relate to counterparties covered by master netting arrangements with whom a net asset position was held at the balance sheet date.

Hedge accounting

In applying hedge accounting, the Group designates certain derivatives as hedging instruments in either fair value or cash flow hedge relationships.

Fair value hedges

Certain interest rate derivatives are designated as hedging instruments. These are primarily used to reduce the interest rate exposure on the Group's fixed rate financial assets and liabilities.

Cash flow hedges

The Group designates certain interest rate derivatives in cash flow hedge relationships in order to hedge the exposure to variability in future cash flows arising from floating rate assets.

The years in which the hedged cash flows are expected to occur are shown in the tables below:

Up to 1 to 2 2 to 5 Over 1 year years years 5 years Total 31 December 2014 £m £m £m £m £m

Forecast receivable cash flows 14 8 23 11 56 Forecast payable cash flows

Up to 1 to 2 2 to 5 Over 1 year years years 5 years Total 31 December 2013 £m £m £m £m £m

Forecast receivable cash flows 2 1 8 6 17 Forecast payable cash flows

-The hedged cash flows are expected to impact on the income statement in the following years:

Up to 1 to 2 2 to 5 Over 1 year years years 5 years Total 31 December 2014 £m £m £m £m £m

Forecast receivable cash flows 15 7 16 18 56 Forecast payable cash flows

Up to 1 to 2 2 to 5 Over 1 year years years 5 years Total 31 December 2013 £m £m £m £m £m

Forecast receivable cash flows 2 2 8 5 17 Forecast payable cash flows

-During the years ended 31 December 2014 and 31 December 2013, there were no forecast transactions to which the Group had applied hedge accounting which were no longer expected to occur.

C o n s o lid a te d F in a n c ia l S ta te m e n ts R is k M a n a g e m e n t G o v e rn a n c e B a n k F in a n c ia l S ta te m e n ts n

£m £m

Placements with other banks 5,277 11,842

Mandatory deposits with central banks 1,035 982

Loans and advances to banks 6,312 12,824

Amounts include:

Due from the Parent 5,102 11,646

Represented in placements with other banks is:

• an amount of £5,102 million (31 December 2013: £11,646 million) arising from transactions with the Parent, which primarily relates to the management of the Group's interest rate risk position. Amounts due to the Parent of £5,193 million (31 December 2013:

£11,651 million) are also disclosed in note 22. From a counterparty credit risk perspective, whilst these two amounts are disclosed on a gross basis, the Group has in place a contractual Master Netting Agreement with the Parent, whereby, in the event of default of either party, all amounts due or payable will be settled immediately on a net basis;

• also included in amounts due from the Parent are £281 million of loans, whose return is dependent on movements in various external indices (31 December 2013: £337 million). These loans are designated at fair value through the profit or loss. Refer to note 33 for details on fair value.

During the year ended 31 December 2014 £6.7 billion of balances were repaid by the Parent. For further details see note 34.

Represented in mandatory deposits with central banks is:

• an amount of £999 million relating to collateral with the Bank of England in respect of notes in circulation (31 December 2013: £946 million). £553 million of this refers to non-interest bearing collateral (31 December 2013: £518 million); and

• an amount of £36 million in relation to mandatory cash ratio deposits, which are non-interest bearing deposits placed with the Bank of England under the provisions of the Bank of England Act 1998 (31 December 2013: £36 million).