Barclays 2011 Annual Report Download - page 46

Corporate governance report continued
Board Risk Committee Chairman’s report continued
– We received quarterly updates on capital and liquidity from the Group
Treasurer, including an assessment of performance against liquidity
risk appetite and an assessment of the Group’s liquidity profile,
to satisfy ourselves that sufficient liquidity is held to cover both
market-wide and Barclays specific stress scenarios. The Eurozone
crisis gave rise to difficult conditions in the money markets and we
discussed and received regular written updates on counterparty and
liquidity risk in the third and fourth quarters of 2011.
– We discussed and agreed scenarios for our internal stress testing
exercises and reviewed the results. As part of planning for the stress
tests, the Committee specifically requested that a single European
peripheral sovereign default be modelled given prevailing conditions
in the Eurozone. The stress testing exercises evidenced that the
Group remains profitable and well-capitalised above required
minimum levels. We also reviewed the results of the stress testing
exercises required by the European Banking Authority (EBA), which
were published in July 2011. The results of these EBA stress tests
showed that Barclays remains capitalised above the required
regulatory targets for Core Tier 1 capital.
– We reviewed the Group’s economic capital framework, including
the governance around the models used, methodology changes
introduced in 2011 and how the framework is used to assist risk
management across the Group.
– In late 2011, we reviewed the proposed risk appetite for 2012. The risk
appetite process again assessed the Group’s performance in a 1 in 7
and 1 in 25 scenario and reviewed the performance of agreed
parameters in such scenarios to identify any potential constraints.
While we were content to recommend risk appetite to the Board,
current economic conditions mean that there is a greater likelihood
of event risk and we will keep performance against risk appetite
under very close review in 2012.
Key Risk Issues
Key risk issues are those that have been proposed by management for
review by the Committee in detail, so that we can assess the current and
potential future impact and ensure that any risks are being managed
appropriately. These in-depth reviews have this year been driven largely
by the changing economic and regulatory environment. Some of the
specific issues we considered in 2011 were:
– Given the ongoing difficulties in the Eurozone, we undertook two
specific country risk reviews in 2011, choosing Portugal and Italy.
These reviews took a holistic approach to Barclays business in those
countries, focusing on both macro risks and specific business risks,
and an assessment of any potential issues those businesses might
face in a stressed environment. We were particularly keen to ensure
that any lessons learned from these reviews are embedded Group-
wide. We also received a presentation on the implications of a
break-up of the Eurozone and the actions available to mitigate the
impact on the Group.
– We undertook a review of our funding and liquidity risk management
framework, particularly given the disruption in the wholesale money
markets during the year.
– We received a report on the review of risk management controls that
took place following the announcement of unauthorised trading at
UBS to ensure that any lessons learned could be captured.
– We reviewed measures that are being taken in Barclays Capital to
enhance risk management and to further develop the vision for risk
in that business.
– Given US government austerity measures, we reviewed the Group’s
US Municipal bond business and the scope and extent of our
exposures.
– We also reviewed pension risk, in view of the triennial valuation of the
pension scheme, and tax risk management, where we considered the
Group’s own tax risk and the risk it takes on behalf of clients.
Internal Control and Risk Management Framework
We annually review the internal control and risk management framework
to ensure it remains fit for purpose. This year we reviewed and agreed
proposals to update the Group’s Internal Control and Assurance
Framework (GICAF) and agreed updates to the Group’s Principal Risks
Policy, to define four principal risks: Credit, Market, Funding and
Operational Risk. More details on the GICAF and the Principal Risks Policy
can be found in the Directors’ Report on page 48 and in the Risk
Management section on pages 67 to 158.
Remuneration
We again provided input to the Board Remuneration Committee on
the risk metrics to be used to determine financial performance and we
reviewed the risk perspective on performance, which was used to inform
remuneration decisions for 2011.
Effectiveness
As part of the annual Board Effectiveness Review, the performance of
the Committee is assessed by the Committee itself and by the Board
as a whole. This year’s review concluded that the Committee continues
to operate effectively. Areas where we could enhance our performance
include continuing to ensure that information flows to the Committee
are appropriate and timely, given the changing environment.
Looking ahead to 2012
For 2012, global macroeconomic factors will continue to shape the
Committee’s agenda. We will continue to closely monitor our risk profile
and performance against risk appetite, with a particular focus on capital
and liquidity. We will also continue to monitor carefully our Eurozone
exposures.
David Booth
Chairman, Board Risk Committee
1
2
3
45
Board Risk Committee allocation of time
2011 2010
1 Risk profile/Risk appetite
(including capital and
liquidity management)
45 51
2 Key risk issues 38 24
3 Internal control/Risk polices 6 2
4 Regulatory frameworks 4 4
5 Other (including Remuneration
and Governance issues) 7 19
%
44 Barclays PLC Annual Report 2011 www.barclays.com/annualreport