Barclays 2010 Annual Report Download - page 77

Principal Risk Factor Principal Risk Management Key Specific Risks and Mitigation
3. Market Risk
Market Risk is the risk that
the Group’s 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
Group is exposed to market
risk through traded market
risk, non-traded interest rate
risk and the pension fund.
The Board approves market risk appetite for trading
and non-trading activities, with limits set within
this context by the Group Market Risk Director.
The head of each business market risk team is
responsible for implementing the Barclays Market
Risk Control Framework which sets out how market
risk should be identified, measured, controlled,
reported and reviewed. Oversight and challenge is
provided by business committees, Group committees
and the central Group market risk team.
Non-traded interest rate risk is hedged with the
external market by a business treasury operation
or Group Treasury.
For further information see pages 118 to 125.
Traded Market Risk Exposures
While the Group is exposed to continued market volatility,
Barclays Capital’s trading activities are principally a
consequence of supporting customer activity.
Primary stress testing applies stress moves to each of the
major asset classes. Most asset class stress limits were,
at some point during 2010, near to their limit. There was
one instance of an excess to limit in relation to equity risk
in March 2010. This was appropriately escalated and
remediated promptly.
Barclays Capital’s 2010 market risk exposure, as measured
by average total DVaR decreased to £53m (2009: £77m).
For further information see pages 119 and 120.
Non-traded Interest Rate Risk
The Group is exposed to three main types of non-traded
interest rate risk:
– fixed rate loans and deposits that are not hedged or
matched;
– structural risk due to variability of earnings on structural
product and equity balances which have no contractual
maturity and an interest rate which does not move in
line with the base rate; and
– margin compression.
Fixed rate loan risk is mitigated by hedging the risk with
the external market either via Group Treasury, or a business
treasury operation. Structural risk and margin compression
are hedged by equity and structural hedges managed by
Group Treasury. The maturities of these hedges were
extended during 2010.
Due to economic concerns in the third quarter, gilts
purchased as part of the equity structural hedge extension
were sold. The duration extension process was resumed
towards the end of 2010 and is expected to be completed
by the end of 2011.
For further information see pages 121 to 123.
Pension Fund Risk
Barclays could be required or might choose to make extra
contributions to the pension fund. Financial details of the
pension fund are in Note 28.
Barclays PLC Annual Report 2010 www.barclays.com/annualreport10 75
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