Barclays 2011 Annual Report Download - page 19

Our risk management overview
Barclays has clear risk management objectives and a well-established
strategy to deliver them, through core risk management processes.
This enables us to fully understand and minimise the impact of
uncertainty on the business.
For more detailed information, please see the
Risk Management section pages 67 to 158
Board
Board Corporate Governance
and Nominations Committee
Board Citizenship
Committee
Board Risk
Committee
Board Remuneration
Committee
Assurance
Financial Risk Committee
Credit risk Market risk Funding risk Operational risk
Treasury Committee Operational Risk Committee Tax Risk Committee
Authority controls appetite
Reporting and control
Chief Executive
Group Executive Committee
Board Audit
Committee
Four Principal Risks
Credit risk
Credit risk is the risk of the Group suffering financial loss if any of its
customers, clients or market counterparties fails to fulfil their contractual
obligations to the Group. This arises mainly from wholesale and retail
loans and advances together with the counterparty credit risk arising from
derivative contracts entered into with its clients. Other sources of credit
risk arise from trading activities, including debt securities, settlement
balances with market counterparties, available for sale assets and reverse
repurchase loans. This can also arise when an entity’s credit rating is
downgraded, leading to a fall in the value of Barclays investment in its
issued financial instruments.
Market risk
Market risk is the risk of the Group suffering financial loss due to being
unable to hedge its balance sheet at prevailing market levels. The Group
can be impacted by changes in both the level and volatility of prices e.g.
interest rates, credit spreads, commodity prices, equity prices and foreign
exchange rates. The risk is reported as traded risk where Barclays supports
customer activity primarily via Barclays Capital; non-traded risk to support
customer products primarily in the retail bank; and pension risk in relation
to investment returns within the defined benefit scheme.
Funding risk
Funding risk comprises three key risks:
Liquidity risk – the Group is unable to meet its obligations as they fall
due resulting in: an inability to support normal business activity; failing
to meet liquidity regulatory requirements; or changes to credit ratings.
Capital risk – the Group is unable to maintain appropriate capital ratios
which could lead to an inability to support business activity; failing to
meet regulatory requirements; or changes to credit ratings.
Structural risk – management of non-contractual risks and primarily arises
from the impact on the Group’s balance sheet of changes in primarily
interest rates on income or foreign exchange rates on capital ratios.
Operational risk
Operational risk is the risk of direct or indirect impacts resulting from
human factors, inadequate or failed internal processes and systems or
external events. Operational risks are inherent in the Group’s business
activities. The key risks that this principal risk includes are external
suppliers, fraud, financial reporting, information, legal, product, payments,
people, premises & security, regulatory, taxation, technology and transaction
operations. For definitions of these key risks see pages 74 to 78.
Barclays PLC Annual Report 2011 www.barclays.com/annualreport 17
The strategic report Governance Risk management Financial review Financial statements Shareholder information