Barclays 2014 Annual Report Download - page 204

202 I Barclays PLC Annual Report 2014 barclays.com/annualreport
Risk performance
Funding risk – Liquidity
Risk review
Repurchase agreements and reverse repurchase agreements
The Group enters into repurchase and other similar secured borrowing agreements to finance its trading portfolio assets. The majority of reverse
repurchase agreements are matched by offsetting repurchase agreements entered into to facilitate client activity. The remainder are used to settle
trading portfolio liabilities.
Due to the high quality of collateral provided against secured financing transactions, the liquidity risk associated with this activity is significantly
lower than unsecured financing transactions. Nonetheless, the Group manages to gross and net secured mismatch limits to limit refinancing risk
under a severe stress scenario and a portion of the Group’s liquidity pool is held against stress outflows on these positions. The Group secured
mismatch limits are calibrated based on market capacity, liquidity characteristics of the collateral and risk appetite of the Group.
The cash value of repurchase and reverse repurchase transactions will typically differ from the market value of the collateral against which these
transactions are secured by an amount referred to as a haircut (or over-collateralisation). Typical haircut levels vary depending on the quality of
the collateral that underlies these transactions. For transactions secured against highly liquid collaterala, lenders demand relatively small haircuts
(typically ranging from 0-2%). For transactions secured against less liquid collateral, haircuts vary by asset class (typically ranging from 5-10% for
corporate bonds and other less liquid collateral).
As at 31 December 2014, the significant majority of repurchase activity related to matched-book activity. The Group may face refinancing risk on
the net maturity mismatch for matched-book activity. 66% (2013: 76%) of matched-book activity is against highly liquid collateral. Where less
liquid collateral is used, net repurchase refinancing requirements are managed to longer tenors.
Net matched-book activitya,b
Negative number represents net repurchase agreement (net liability)
As at 31 December 2014
Less than
one month
£bn
One month
to three
months
£bn
Over three
months
£bn
Highly liquid (8.9) 6.3 2.6
Less liquid 10.0 (2.2) (7.8)
Total 1.1 4.1 (5.2)
As at 31 December 2013
Highly liquid (8.9) 2.3 6.6
Less liquid 4.3 (0.1) (4.2)
Total (4.6) 2.2 2.4
The residual repurchase agreement activity is the firm-financing component and reflects the Group funding of a portion of its trading portfolio
assets. The primary risk related to firm-financing activity is the inability to roll-over transactions as they mature. However, 54% (2013: 63%) of
firm-financing activity was secured against highly liquid assets, and the weighted average maturity of firm-financing activity secured against less
liquid assets was 56 days (2013: 69 days).
Firm-financing repurchase agreementsa, b
As at 31 December 2014
Less than
one month
£bn
One month
to three
months
£bn
Over three
months
£bn
Total
£bn
Highly liquid 33.4 4.1 2.2 39.7
Less liquid 19.0 6.6 8.0 33.6
Total 52.4 10.7 10.2 73.3
As at 31st December 2013
Highly liquid 42.8 7.9 2.9 53.6
Less liquid 20.7 2.9 7.8 31.4
Total 63.5 10.8 10.7 85.0
Notes
a Highly liquid assets include government bonds, agency securities and agency mortgage-backed securities. Less liquid assets include asset-backed securities, corporate bonds,
equities and other.
b Includes collateral swaps.