Barclays 2004 Annual Report Download - page 67

Risk management
Capital and liquidity risk management
65
Barclays PLC Annual Report 2004
The Board Risk Committee has approved Board Governance Standards
for capital and liquidity risk management that are high level
statements of the controls required to meet the Group’s strategic
objectives.
The Treasurer has established risk control frameworks and a policy
and assurance structure to ensure that capital and liquidity risks are
managed in accordance with the requirements of the Board Standards.
Policies are set by the Treasury Committee which is chaired by the
Group Finance Director.
Capital Risk Management
See page 113 in the Financial Discussion for information on the
Group’s capital position.
Capital risk is the risk that the Bank fails to comply with FSA mandated
regulatory requirements, resulting in a breach of its minimum capital
ratios and the possible suspension or loss of its banking licence.
Capital risk also includes the risk that the capital base is not managed
in a prudent manner thereby endangering the Group’s credit rating.
Barclays views its strong credit rating as a source of competitive
advantage. A solid capital position, together with a diverse portfolio
of activities, an increasingly international presence, consistent profit
performance, prudent risk management and a focus on value creation,
underpins that rating.
The Group’s capital management will continue to maximise
shareholder value through optimising both the level and mix of its
capital resources, seeking to:
•meet the individual capital ratios required by our regulators;
•maintain an AA credit rating;
•generate sufficient capital to support asset growth and corporate
activity;
•manage the currency exposure to its overall Sterling Risk Asset
ratio.
Over the past four years, the Group’s tier 1 ratio has averaged 7.9%.
The Group’s Risk Asset ratio has averaged 12.5% which compares
favourably to the minimum requirements of our regulators.
Note
(a) Less supervisory deductions.
2002 20042003£m
22,191
24,223 25,216
0Tier 1
Tiers
2 & 3(a)
Regulatory capital by tiers
30,000
25,000
20,000
15,000
10,000
5,000
Liquidity Risk Management
Liquidity risk is the risk that the Group is unable to meet its payment
obligations when they fall due and to replace funds when they are
withdrawn, the consequence of which may be the failure to meet
obligations to repay depositors and fulfil commitments to lend.
Liquidity management within the Group has several strands. The first
is day-to-day funding, managed by monitoring future cash flows to
ensure that requirements can be met. This includes replenishment
of funds as they mature or are borrowed by customers. The Group
maintains an active presence in global money markets to enable that
to happen. The second is maintaining a portfolio of highly marketable
assets that can easily be liquidated as protection against any
unforeseen interruption to cash flow. Finally, the ability to monitor,
manage and control intraday liquidity in real time is recognised by the
Group as a mission critical process: Any failure to meet specific
intraday commitments would be a public event and may have an
immediate impact on the Group’s reputation.
In overseas markets, day-to-day liquidity is the responsibility of local
treasury management in each territory within the parameters set
by Treasury and subject to regular reports to Treasury in order to
maximise the benefits of knowledge gained. Local asset and liability
management committees review liquidity management. These
committees are comprised of senior local executives and – when
warranted by the size and complexity of the operation –
representatives of Treasury.
The ability to raise funds is in part dependent on maintaining the
bank’s credit rating. The funding impact of a credit downgrade is
regularly estimated. Whilst the impact of a single downgrade may
affect the price at which funding is available, the effect on liquidity
is not considered material in Group terms.