Barclays 2011 Annual Report Download - page 141

This risk is inherent in all banking operations and can be affected by a range of Group-specific and market-wide events which can result in:
– an inability to support normal business activity; and
– a failure to meet liquidity regulatory requirements.
During periods of market dislocation, the Group’s ability to manage liquidity requirements may be impacted by a reduction in the availability of
wholesale term funding as well as an increase in the cost of raising wholesale funds. Asset sales, balance sheet reductions and the increasing costs
of raising funding will affect the earnings of the Group.
In illiquid markets, the Group may decide to hold assets rather than securitising, syndicating or disposing of them. This could affect the Group’s ability
to originate new loans or support other customer transactions as both capital and liquidity are consumed by existing or legacy assets.
In addition, the introduction of capital controls or new currencies by countries to mitigate current stresses could have a consequential effect on
performance of the balance sheets of certain Group companies based on the asset quality, types of collateral and mix of liabilities.
The efficient management of liquidity is essential to the Group in retaining the confidence of the financial markets and ensuring that the business
is sustainable. Liquidity risk is managed through the Liquidity Risk Framework, which is designed to meet the following objectives:
– To maintain liquidity resources that are sufficient in amount and quality and a funding profile that is appropriate to meet the liquidity risk framework
as expressed by the Board;
– To maintain market confidence in the Group’s name;
– To set limits to control liquidity risk within and across lines of business and legal entities;
– To accurately price liquidity costs, benefits and risks and incorporate those into product pricing and performance measurement;
– To set early warning indicators to identify immediately the emergence of increased liquidity risk or vulnerabilities including events that would
impair access to liquidity resources;
– To project fully over an appropriate set of time horizons cash flows arising from assets, liabilities and off-balance sheet items; and
– To maintain a contingency funding plan that is comprehensive and proportionate to the nature, scale and complexity of the business and that
is regularly tested to ensure that it is operationally robust.
Governance and organisation
Barclays Treasury operates a centralised governance control process that covers all of the Group’s liquidity risk management activities. The Barclays
Treasurer is responsible for designing the Group Liquidity Risk Management framework (the Liquidity Framework) which is sanctioned by the Board
Risk Committee (BRC). The Liquidity Framework incorporates liquidity policies, systems and controls that the Group has implemented to manage
liquidity risk within tolerances approved by the Board and regulatory agencies. The Board sets the Group’s Liquidity Risk Appetite (LRA), being the level
of risk the Group chooses to take in pursuit of its business objectives and in meeting its regulatory obligations. The Treasury Committee is responsible
for the management and governance of the mandate defined by the Board. The Group Asset and Liability Committees is a sub-committee of the
Treasury Committee with responsibility for review, challenge and approval of the Liquidity Framework. The Liquidity Framework is reviewed regularly
at Treasury Committee and BRC.
Liquidity is recognised as a key risk and the Barclays Treasurer is the Group Key Risk owner, supported by Key Risk Owners at regional and country
levels. Execution of the Group’s liquidity risk management strategy is carried out at country level, with the country Key Risk Owners providing reports
to Barclays Treasury to evidence conformance with the agreed risk profile. Further oversight is provided by country, regional and business level Asset
and Liability Committees.
Liquidity risk
The definition of liquidity risk is the risk that the Group is unable to meet its obligations as
they fall due as a result of a sudden, and potentially protracted, increase in net cash outflows.
Such outflows would deplete available cash resources for client lending, trading activities and
investments. These outflows could be principally through customer withdrawals, wholesale
counterparties removing financing, collateral posting requirements or loan draw-downs.
Risk management
Funding risk – Liquidity
All disclosures in this section (pages 139 to 150) are unaudited unless otherwise stated
Barclays PLC Annual Report 2011 www.barclays.com/annualreport 139
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