Barclays 2011 Annual Report Download - page 144

Risk management
Funding risk – Liquidity continued
Barclays manages the liquidity pool on a centralised basis. As at 31 December 2011, 94% of the liquidity pool was located in Barclays Bank PLC.
The residual liquidity pool is held predominantly within Barclays Capital Inc. (BCI) against contractual and contingent stress outflows in the LRA stress
test at the legal entity level. The Group does not rely on any excess of liquid assets over outflows in BCI.
Additionally the Absa Group holds a liquidity pool of £2bn, which is managed independently due to local currency and funding requirements
Composition of the group liquidity pool (audited) Cash and
deposits with
central banksa
£bn
Government
bondsb
£bn
Other
available
liquidity
£bn
Totalc
£bn
As at 31 December 2011 105 36 11 152
As at 31 December 2010 96 40 18 154
Liquidity risk stress testing
Under the Liquidity Framework, the Group runs three liquidity stress scenarios, aligned to the FSA’s prescribed stresses: a market-wide stress event,
a Barclays specific stress event and a combination of the two. Under normal market conditions, the liquidity pool must be in excess of 100% of three
months’ anticipated outflows for a market-wide stress and one month’s anticipated outflows for each of the Barclays specific and combined stresses.
Barclays is primarily focused upon the Barclays specific stress scenario, which also results in the greatest net outflows of each of the liquidity stress tests.
Key Liquidity Risk Appetite assumptions include:
Liquidity Risk Driver Barclays Specific Stress
Net wholesale funding
outflow
– Outflows at contractual maturity of wholesale funding and conduit commercial paper, with no rollover / new
issuance
– Prime Brokerage: 100% loss of excess client derivative margin and 100% loss of excess client cash
Loss of secured financing &
increased haircuts
– Loss of repo capacity at contractual maturity date and incremental haircut widening, depending upon
collateral type
Retail & commercial bank
deposit outflows
– Substantial outflows as Barclays is seen as greater credit risk than competitors
Intra-day risk – Liquid collateral held against intra-day requirement at clearing and payment systems is regarded as encumbered
with no liquidity value assumed
– Liquid collateral is held against withdrawal of unsecured intra-day lines provided by third parties
Intra-group risk – Risk of cash within subsidiaries becoming unavailable to the wider Group
Funding Concentration risk –A
dditional outflows recognised against concentration of providers of wholesale secured financing
Off-balance sheet risk – Collateral outflows due to market movements, taking account of disputes and mismatches between
collateralised and uncollateralised OTC and exchange-traded positions
– Outflow of all collateral owed by Barclays to counterparties but not yet called
– Anticipated increase in firm’s derivative initial margin requirement in a stressed environment
– Collateral outflows contingent upon a multi-notch credit rating downgrade of Barclays Bank PLC
– Significant drawdown on committed facilities provided to corporates, based on counterparty type,
creditworthiness and facility type
– Drawdown on retail commitments
Franchise Viability – Barclays liquidity stress testing recognises that it will be necessary to hold additional liquidity in order to
meet outflows that are non-contractual in nature, but are necessary in order to support the ongoing franchise
(for example, market-making activities)
Mitigating actions – Unencumbered marketable assets that are held outside of the liquidity pool, and that are of known liquidity
value to the firm, are assumed to be monetised (subject to haircut / valuation adjustment)
The market-wide stress scenario allows for a partial roll-over of wholesale funds, maintains repo market capacity (albeit at wider haircuts depending
upon collateral type) and includes lower outflows on retail and commercial bank deposits given that Barclays would not be seen as a greater credit risk
relative to competitors.
The combined scenario is a combination of the market wide and Barclays specific stress assumptions.
Notes
a Of which over 95% is placed with the Bank of England, US Federal Reserve, European Central Bank, Bank of Japan and Swiss National Bank.
b Of which over 80% are comprised of UK, US, Japanese, French, German and Dutch securities.
c £140bn of which is FSA eligible.
142 Barclays PLC Annual Report 2011 www.barclays.com/annualreport