Barclays 2011 Annual Report Download - page 143

Ongoing business management
Liquidity limits
Barclays manages to limits on a variety of on and off-balance sheet exposures a sample of which are shown in the table below. These limits serve to
control the overall extent and composition of liquidity risk taken by managing exposure to particular sources of liabilities, asset liability mismatches
and counterparty concentrations. Barclays also limits activities permitted at a country level. Businesses are only allowed to have funding exposure to
wholesale markets where they can demonstrate that their market is sufficiently deep and liquid and then only relative to the size and complexity of
their business.
Liquidity Limits
Unsecured Limits – By currency
– By maturity
– By liability type
FX Limits Conduit Facilities Limits
Secured Limits – By currency
– By maturity
– By collateral type
– By counterparty
Counterparty
Concentration Limits
Off-Balance Sheet
Commitment Limits
Internal pricing and incentives
Barclays actively manages the composition of the balance sheet and contingent liabilities through the appropriate transfer pricing of liquidity costs
and induce the correct behaviour and decision making. These take the form of funds transfer pricing and economic funds allocation of behaviouralised
assets and liabilities and contingent liquidity risk charging to the businesses. These transfer pricing mechanisms are designed to ensure that liquidity
risk is reflected in product pricing and performance measurement, thereby ensuring that the Liquidity Framework is integrated into business level
decision making to drive the appropriate mix of sources and uses of funds.
Early warning indicators
Barclays monitors a range of market indicators for early signs of liquidity risk either in the market or specific to Barclays, a sample of which are shown in
the table below. Additionally country and business level Asset and Liability Committees monitor early warning indicators appropriate to their businesses.
These are designed to immediately identify the emergence of increased liquidity risk to maximise the time available to execute appropriate mitigating
actions. A deterioration in Early Warning Indicators can lead to invocation of the Group’s Contingency Funding Plan, which provides a framework for
how the liquidity stress would be managed.
Early Warning Indicators
Change in composition of deposits Level of debt buybacks Rising funding costs
Widening CDS spreads Change in maturity profile Repo haircut widening
Liquidity Risk appetite
Regulatory requirements are complied with at the Group and entity level, with the Liquidity Risk Appetite (LRA) providing a consistent Group wide
perspective that supplements these requirements. Under the Liquidity Framework, the Group has established the LRA, which is the level of liquidity risk
the Group chooses to take in pursuit of its business objectives and in meeting its regulatory obligations. It is measured with reference to the liquidity
pool as a percentage of anticipated stressed net contractual and contingent outflows for each of three stress scenarios.
The stress outflows are used to determine the size of the Group Liquidity Pool, which represents those resources immediately available to meet
outflows in a stress. In addition to the Liquidity Pool, the Liquidity Framework provides for other management actions, including generating liquidity
from other liquid assets on the Group’s balance sheet in order to meet additional stress outflows, or to preserve or restore the Liquidity Pool in the event
of a liquidity stress.
Liquidity pool (audited)
The Group liquidity pool is held unencumbered against contractual and contingent stress outflows in the LRA stress tests. The liquidity pool is not used
to support payment or clearing requirements. As of 31 December the Group liquidity pool was £152bn (2010: £154bn) and moved within a month-end
range of £140bn to £167bn during the year.
Barclays does not include any own-name securities in its liquidity pool.
Barclays PLC Annual Report 2011 www.barclays.com/annualreport 141
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