Barclays 2004 Annual Report Download - page 63

Risk management
Market risk management
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Barclays PLC Annual Report 2004
Market Risk is the risk that the Group’s earnings or capital, or its
ability to meet business objectives, will be adversely affected by
changes in the level or volatility of market rates or prices such as
interest rates, credit spreads, foreign exchange rates, equity prices,
and commodity prices.
The main market risks arise from the Group’s trading activities.
Barclays is also exposed to non-trading market risks relating to the
pension fund and, to a lesser extent, asset and liability management.
Categorisation of Market Risk
To facilitate the management, control, measurement and reporting
of market risk, Barclays has grouped market risk into three broad
categories:
•Trading market risk
These risks arise in trading transactions where Barclays acts as
principal with clients or with the market. The Group’s policy is that
market risks arising from trading activities are concentrated in
Barclays Capital.
•Asset and Liability risk
These risks arise from banking activities, including those incurred
on non-trading positions such as capital balances, demand deposits
and customer originated transactions and flows.
•Other market risks
The Group also incurs market risks that do not fit into the above
categories. The principal risks of this type are defined benefit
pension scheme risk and asset management structural market risk
(including the risk in Barclays Life Fund).
Market Risk Management and Control Responsibilities
The Board Risk Committee approves the market risk appetite for all
types of market risk. The Market Risk Director is responsible for the
Group’s market risk control framework and, under delegated authority
from the Risk Director and the Risk Oversight Committee, sets a limit
framework within the context of the approved market risk appetite.
The Market Risk Director is assisted by a central market risk
management team (Market Risk) and by risk management
departments in the Group’s businesses. A daily market risk report
summarises the Group’s market risk exposures against agreed limits.
This daily report is sent to the Risk Director, the Market Risk Director,
the Group Finance Director and the appropriate Business Risk Directors.
The Head of each business, assisted by the business risk management
team, is accountable for identifying, measuring and managing all
market risks associated with its activities. In managing market risk,
businesses also consider liquidity risk where relevant.
In Barclays Capital, the Head of Market Risk is responsible for the
market risk governance and control framework. Day-to-day
responsibility for market risk lies with the senior management of
Barclays Capital, supported by the Global Market Risk Management
team that operates independently of the trading areas. Daily market
risk reports are produced for the main Barclays Capital business areas
covering the five main risk factor categories, namely interest rate,
credit spread, foreign exchange, equity and commodity risk. A more
detailed trading market risk presentation is discussed at Barclays
Capital’s Traded Products Risk Review meeting, held fortnightly. The
attendees at this meeting include the senior managers from Barclays
Capital and Market Risk.
Outside Barclays Capital, Treasury manages treasury market risk,
strategic interest rate risk and structural interest rate risk. Retail
market risk, a consequence of the UK banking operations, is managed
by the Retail Market Risk team. In the Group’s non-UK banking
operations, market risk is managed mainly by local treasuries
supported by Market Risk. The chart overleaf gives an overview of
the business control structure.