Barclays 2006 Annual Report Download - page 90

Barclays PLC
Annual Report 2006
86
Risk management
Market risk management
Market risk management
Market risk is the risk that Barclays earnings or capital, or its ability to
meet business objectives, will be adversely affected by changes in the
level or volatility of market rates or prices such as interest rates, credit
spreads, commodity prices, equity prices and foreign exchange rates.
The main market risks arise from trading activities. Barclays is also
exposed to non-trading market risks relating to asset and liability
management and to the Pension Fund.
Categorisation of market risk
To facilitate the management, control, measurement and reporting
of market risk, Barclays has grouped market risk into three broad
categories:
•Trading market risk
These risks arise in trading transactions where Barclays acts as
principal with clients or with the market. Barclays policy is that
market risks arising from trading activities are concentrated in
Barclays Capital.
•Asset and liability risk
These risks arise from banking activities, including those incurred
on non-trading positions such as customer assets and liabilities
and capital balances.
•Other market risks
Barclays also incurs market risks that are assessed under a slightly
different framework. The principal risks of this type are defined
benefit pension scheme risk and asset management structural
market risk.
Market risk management and control responsibilities
The Board approves the market risk appetite for all types of market risk.
The Market Risk Director is responsible for the market risk control
framework and, under delegated authority from the Risk Director, sets a
limit framework within the context of the approved market risk appetite.
A daily market risk report summarises Barclays market risk exposures
against agreed limits. This daily report is sent to the Risk Director, the
Market Risk Director, the Finance Director and the appropriate Business
Risk Directors.
The Head of each business, assisted by the business risk management
team, is accountable for identifying, measuring and managing all
market risks associated with its activities. Oversight and support is
provided by the Market Risk Director, assisted by the central market
risk team.
In Barclays Capital, the Head of Market Risk is responsible for
implementing the market risk control framework. Day to day
responsibility for market risk lies with the senior management of
Barclays Capital, supported by the Market Risk Management team that
operates independently of the trading areas. Daily market risk reports
are produced for the main Barclays Capital business areas covering the
six main risk factor categories, namely interest rate, inflation, credit
spread, commodity, equity and foreign exchange. A more detailed
trading market risk presentation is produced fortnightly and discussed
at Barclays Capital’s Traded Products Risk Review meeting. The
attendees at this meeting include the senior managers from Barclays
Capital and the central market risk team.
Outside Barclays Capital, Treasury manages treasury market risk and
structural risk. Retail market risk, a consequence of the UK banking
operations, is managed by the Retail Market Risk team. In the non-UK
banking operations, market risk is managed mainly by local treasuries.
The chart overleaf gives an overview of the business control structure.
•Traded Products Risk Review
Committee.
Market risk
Director
Barclays Capital
Other
•Pension Fund Trustees.
•Respective business areas, primarily
BGI.
Treasury
Overseas Treasuries
Asset and liability risk
•Treasury management market risk.
•Structural risk.
•Retail market risk.
•Overseas treasury market risk.
Trading risk
and reviewed by
market risk and…
…managed byRisk type
Other market risks
•Pension Fund.
•Asset management.
•Treasury Committee.
•Treasury Hedging Committee.
•Business-level Asset and
Liability Committees.
•New product process.
•Business-level Asset and
Liability Committees.
•Barclays Market risk supervision visits.
•New product process.
•Barclays Pension Board.
Retail market risk