Notes to the parent company
financial statements

• « 8 Related party transactions
• 9 Financial instruments
• 10 Post balance sheet events »

9 Financial instruments

Measurement basis of financial assets and liabilities

The accounting policies in note 2 to the consolidated financial statements describe how different classes of financial instruments are measured, and how income and expenses, including fair value gains and losses, are recognised. The following table analyses the carrying amounts of the financial assets and liabilities by category and by balance sheet heading.

	Derivatives designated as hedging instruments, held at fair value through profit or loss £m	Held for trading at fair value through profit or loss £m	Loans and receivables £m	Held at amortised cost £m	Total £m
As at 31 December 2008
Financial assets:
Cash and cash equivalents	–	–	–	1,201	1,201
Derivative financial instruments	501	796	–	–	1,297
Loans to subsidiaries	–	–	3,009	–	3,009
Amounts due from subsidiaries	–	–	216	–	216
Total financial assets	501	796	3,225	1,201	5,723
Financial liabilities:
Debt securities in issue	–	–	–	2,644	2,644
Subordinated liabilities	–	–	–	2,875	2,875
Total financial liabilities	–	–	–	5,519	5,519
	Derivatives designated as hedging instruments, held at fair value through profit or loss £m	Held for trading at fair value through profit or loss £m	Loans and receivables £m	Held at amortised cost £m	Total £m
As at 31 December 2007
Financial assets:
Cash and cash equivalents	–	–	–	58	58
Derivative financial instruments	169	–	–	–	169
Loans to subsidiaries	–	–	2,820	–	2,820
Amounts due from subsidiaries	–	–	92	–	92
Total financial assets	169	–	2,912	58	3,139
Financial liabilities:
Derivative financial instruments	29	–	–	–	29
Debt securities in issue	–	–	–	1,744	1,744
Subordinated liabilities	–	–	–	2,345	2,345
Total financial liabilities	29	–	–	4,089	4,118

Interest rate risk and currency risk

The Company is exposed to interest rate risk and currency risk on its debt securities in issue and its subordinated debt.

As discussed in note 8, the Company has entered into interest rate and currency swaps with its subsidiary, Lloyds TSB Bank plc, to manage these risks.

Credit risk

The majority of the Company's credit risk arises from amounts due from its wholly owned subsidiary, Lloyds TSB Bank plc, and subsidiaries of that company.

Liquidity risk

The table below analyses financial instrument liabilities of the Company, on an undiscounted future cash flow basis according to contractual maturity, into relevant maturity groupings based on the remaining period at the balance sheet date, balances with no fixed maturity are included in the over 5 years category.

	Up to 1 month £m	1-3 months £m	3-12 months £m	1-5 years £m	Over 5 years £m	Total £m
As at 31 December 2008
Debt securities in issue	75	12	2,601	–	–	2,688
Subordinated liabilities	14	28	125	789	2,529	3,485
Total	89	40	2,726	789	2,529	6,173
As at 31 December 2007
Derivative financial instruments	10	20	1,791	–	–	1,821
Debt securities in issue	8	15	1,740	50	–	1,813
Subordinated liabilities	11	21	97	516	3,195	3,840
Total	29	56	3,628	566	3,195	7,474

The principal amount for undated subordinated liabilities with no redemption option is included within the over 5 years column; interest of approximately £111 million (2007: £97 million) per annum which is payable in respect of those instruments for as long as they remain in issue is not included beyond 5 years.

Fair values of financial assets and liabilities

The valuation techniques for the Company's financial instruments are as discussed in note 49 to the consolidated financial statements.

	Carrying value 2008 £m	Carrying value 2007 £m	Fair value 2008 £m	Fair value 2007 £m
Financial assets:
Cash and cash equivalents	1,201	58	1,201	58
Derivative financial instruments	1,297	169	1,297	169
Loans to subsidiaries	3,009	2,820	2,139	2,856
Amounts due from subsidiaries	216	92	216	92
Financial liabilities:
Derivative financial instruments	–	29	–	29
Debt securities in issue	2,644	1,744	2,644	1,744
Subordinated liabilities	2,875	2,345	1,563	2,134