Barclays 2010 Annual Report Download - page 166

Corporate governance
Corporate governance report continued
Board Risk Committee Chairman’s report continued
We continued our focus on capital and liquidity in 2010 and the Barclays
Treasurer reported to the Committee regularly on the Group’s capital and
liquidity position, including the individual liquidity adequacy assessment,
required by the FSA. We review economic and regulatory capital demand
and supply and the level of losses that could be experienced before
minimum regulatory capital ratios are breached. We also reviewed the
Group’s liquidity profile to ensure that sufficient liquidity is held to cover
both market-wide and Barclays specific stress scenarios. Stress testing,
which is an exercise carried out to ensure that the Group would remain
adequately capitalised and liquid even under severe stress, continued
to receive our attention in 2010, as we considered various scenarios to
be modelled. In addition to Barclays own annual stress testing exercise
and the annual stress testing exercise conducted by the FSA, in the first
quarter of 2010 a stress testing exercise was set for all European banks
by the Committee of European Banking Supervisors. The results of that
exercise were published in July 2010. Each of these stress tests showed
that Barclays was adequately capitalised.
During the year we received the first of what we intend to be an annual
presentation on macro prudential and macro-economic risk and the
impact this may have on the Group’s business going forward.
In 2009, we asked Management for a report on the lessons learnt from
the sub-prime crisis and in 2010, Management reported back on how
the lessons learnt are being institutionalised in the business and what is
being done differently in terms of controls and in the way we conduct
our business. We were particularly interested in establishing what cultural
change there has been as a result of the sub-prime experience and in
understanding how that cultural change has been embedded.
In view of the difficulties of some countries in the Eurozone, we spent
some time in 2010 reviewing country and sovereign risk, in particular,
in specific European countries (Spain, Portugal, Italy, Ireland and Greece)
and in sub-investment grade countries. The review covered the extent
of our exposures and the caps that are in place to limit concentrations.
We also reviewed the Group’s position in the commercial property
sector including risk appetite, exposures and controls in our four key
geographies: UK, US, Spain and South Africa. In late 2010, we received
a report on the lessons learned from the impairment suffered by our
Corporate business in Spain, which has been shared with the full Board.
A series of actions have been identified and are being implemented, not
just in relation to Spain but also in terms of how overall risk and returns
across each business in the Group are analysed.
As usual, we considered risk appetite for 2011 although this year we also
reviewed risk appetite methodology and enhancements that have been
made to the process. A set of financial volatility parameters, such as Profit
Before Tax and Loan Loss Rate are agreed. Based upon the Medium Term
Plan, the Group’s performance in a 1 in 7 and 1 in 25 scenario is then
assessed. The performance of the agreed parameters in such scenarios
is then assessed to identify any potential constraints, for example, we
would not wish to see the Loan Loss Rate rise above certain pre-agreed
levels in these scenarios. As a result of the review, we agreed to
recommend the risk appetite to the Board.
We conducted our annual review of the Committee’s performance as
part of the annual Board Effectiveness Review process and concluded
that we continue to operate effectively. We continue to receive
appropriate and timely information from Management and have provided
additional guidance to Management on what we expect their reports to
cover and how they should present to the Committee to ensure that we
make optimum use of our meetings. The majority of the reports we see
are first considered by the Group Risk Oversight Committee or the Group
Executive Committee, which greatly assists the Committee’s
understanding of the issues faced by Management.
David Booth
Chairman, Board Risk Committee
Fig. 9: Board Risk Committee allocation of time
2010
%
2009
%
1
2
3
4
5
1Risk Profile/Risk Appetite
(including capital management) 51 39
2Key Risk Issues including ABS and
Leveraged Credit Markets 24 28
3Internal Control/Risk Policies 24
4Regulatory Frameworks 49
5Other (including remuneration and
governance issues) 19 20
164 Barclays PLC Annual Report 2010 www.barclays.com/annualreport10