Notes 31-35

32 Capital resources

The Group's regulatory capital resources at 31 December in accordance with Financial Services Authority ('FSA') definitions were as follows:

Composition of regulatory capital 2007
£m		 2006
£m
Tier 1 capital:    
Owners' equity and minority interests 88,311 41,700
Innovative tier 1 securities and preference shares transferred from subordinated liabilities 6,919 4,900
Goodwill capitalised and other intangible assets (48,492) (18,904)
Regulatory and other adjustments (2,374) 2,345
Total qualifying tier 1 capital 44,364 30,041
     
Tier 2 capital:    
Unrealised gains on available-for-sale equities 3,115 3,790
Collective impairment allowances, net of taxes 2,582 2,267
Qualifying subordinated debt 27,681 21,024
Minority and other interests in tier 2 capital 315 410
Total qualifying tier 2 capital 33,693 27,491
     
Total qualifying tier 3 capital 200 –
     
Supervisory deductions:    
Unconsolidated investments 4,297 3,870
Investments in other banks 463 5,203
Other deductions 5,523 1,510
Total regulatory capital 67,974 46,949

It is the Group's policy to maintain a strong capital base, to expand it as appropriate and to utilise it efficiently throughout its activities to optimise the return to shareholders while maintaining a prudent relationship between the capital base and the underlying risks of the business. In carrying out this policy, the Group has regard to the supervisory requirements of the FSA. The FSA uses Risk Asset Ratio (“RAR”) as a measure of capital adequacy in the UK banking sector, comparing a bank's capital resources with its risk-weighted assets (the assets and off-balance sheet exposures are 'weighted' to reflect the inherent credit and other risks); by international agreement, the RAR should be not less than 8% with a tier 1 component of not less than 4%. The Group has complied with the FSA's capital requirements throughout the year.

A number of subsidiaries and sub-groups within the Group, principally banking and insurance entities, are subject to various individual regulatory capital requirements in the UK and overseas.

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