Strategic Shareholder Climate and Risk Financial Financial Barclays PLC 457 report information sustainability report Governance review review statements Annual Report 2022 Notes to the financial statements (continued) Assets and liabilities held at fair value 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 2022 2021 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 62,478 64,855 6,480 133,813 80,926 63,828 2,281 147,035 Financial assets at fair value through the income statement 5,720 198,723 9,125 213,568 5,093 177,167 9,712 191,972 Derivative financial assets 10,054 287,152 5,174 302,380 6,150 252,412 4,010 262,572 Financial assets at fair value through other comprehensive income 20,704 44,347 11 65,062 22,009 39,706 38 61,753 Investment property — — 5 5 — — 7 7 Total assets 98,956 595,077 20,795 714,828 114,178 533,113 16,048 663,339 Trading portfolio liabilities (44,128) (28,740) (56) (72,924) (27,529) (26,613) (27) (54,169) Financial liabilities designated at fair value (133) (270,454) (1,050) (271,637) (174) (250,376) (410) (250,960) Derivative financial liabilities (10,823) (272,434) (6,363) (289,620) (6,571) (244,253) (6,059) (256,883) Total liabilities (55,084) (571,628) (7,469) (634,181) (34,274) (521,242) (6,496) (562,012) 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 2022 2021 Assets Liabilities Assets Liabilities £m £m £m £m Interest rate derivatives 2,362 (2,858) 1,091 (1,351) Foreign exchange derivatives 1,513 (1,474) 376 (374) Credit derivatives 290 (603) 323 (709) Equity derivatives 1,009 (1,428) 2,220 (3,625) Corporate debt 1,677 (49) 1,205 (21) Reverse repurchase and repurchase agreements 37 (434) 13 (172) Non-asset backed loans 9,949 — 6,405 — Private equity investments 1,291 (8) 1,095 (6) a Other 2,667 (615) 3,320 (238) Total 20,795 (7,469) 16,048 (6,496) Note a Other includes commercial real estate loans, asset backed loans, 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.