Barclays 2012 Annual Report Download - page 340

Liquidity risk framework
Barclays has a comprehensive Liquidity Framework for managing the
Group’s liquidity risk. The Liquidity Framework is designed to deliver
the appropriate term and structure of funding consistent with the
Liquidity Risk Appetite set by the Board.
The Liquidity Framework incorporates a range of ongoing business
management tools to monitor, limit and stress test the Group’s balance
sheet and contingent liabilities. Limit setting and transfer pricing are
tools that are designed to control the level of liquidity risk taken and
drive the appropriate mix of funds, which together reduce the
likelihood that a liquidity stress event could lead to an inability to meet
the Group’s obligations as they fall due. The stress tests assess
potential contractual and contingent stress outflows under a range of
scenarios, which are then used to determine the size of the liquidity
pool that is immediately available to meet anticipated outflows if a
stress occurred.
In addition the Group maintains a Contingency Funding Plan which
details how liquidity stress events of varying severity would be
managed. Since the precise nature of any stress event can not be
known in advance, the plans are designed to be flexible to the nature
and severity of the stress event and provide a menu of options that
could be used as appropriate at the time. Barclays also maintains
Recovery Plans which consider actions to facilitate recovery from
severe stress or an orderly resolution. The overall framework therefore
provides the necessary tools to manage the continuum of liquidity risk,
as summarised in the chart above.
Ongoing business management
Liquidity Limits
Barclays manages 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.
Internal Pricing and Incentives
Barclays actively manages the composition and duration of the balance
sheet and of contingent liabilities through the transfer of liquidity
premium directly to business units. Liquidity premiums are charged
and credited to businesses according to the behavioural life of assets
and liabilities and contingent risk. 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.
Ongoing business
management
Early signs/Mild stressSevere stress Recovery Resolution
■ Monitoring and review
■ Low cost actions
and balance sheet
optimisation
■ Activate Contingency
Funding Plan
■ Balance sheet reductions
and business limitations
■ Asset and Liability
actions to generate
additional liquidity
■ Ensure an orderly
resolution can be carried
out if necessary, without
adverse systemic risk or
exposing the public
funds to loss
■ Liquidity Limits
■ Pricing and Incentives
■ Early Warning Indicators
■ Risk Appetite and
Planning
Ongoing business management
Unsecured Limits ■ By currency
■ By maturity
■ By liability type
FX Limits Conduit Facilities LimitsInvestment
Concentration Limits
Secured Limits ■ By currency
■ By maturity
■ By liability type
■ By counterparty
Counterparty
Concentration Limits
Off-Balance Sheet
Commitment Limits
Downgrade Exposure
Limits
Liquidity Limits
barclays.com/annualreport338 I Barclays PLC Annual Report 2012
Risk management
Liquidity risk management continued