Barclays 2007 Annual Report Download - page 109

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Business review
Risk management
Liquidity management
Barclays PLC Annual Report 2007 107
Liquidity management
Liquidity risk is the risk that the Group is unable to meet
its obligations when they fall due and to replace funds
when they are withdrawn, with consequent failure to repay
depositors and fulfil commitments to lend. The risk that it
will be unable to do so is inherent in all banking operations
and can be impacted by a range of institution specific and
market-wide events including, but not limited to, credit
events, merger and acquisition activity, systemic shocks
and natural disasters.
Liquidity risk management and measurement
Liquidity management within the Group has several components.
Intraday liquidity
The need 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 have significant consequences.
The Group policy is that each operation must ensure that it has access to
sufficient intraday liquidity to meet any obligations it may have to clearing
and settlement systems. Major currency payment flows and payment
system collateral are monitored and managed in real time to ensure that
at all times there is sufficient collateral to make payments. The Group
actively engages in payment system development to help ensure that
new payment systems are robust.
Day to day funding
Day to day funding, managed by short term mismatch limits for the next
day, week and month which control expected cash flows to ensure that
requirements can be met. These requirements include replenishment of
funds as they mature or are borrowed by customers. The Group maintains
an active presence in global money markets and monitors and manages
the wholesale money market capacity for the Group’s name to enable that
to happen.
In addition to cash flow management, Treasury also monitors unmatched
medium-term assets and the level and type of undrawn lending
commitments, the usage of overdraft facilities and the impact of contingent
liabilities such as standby letters of credit and guarantees.
Liquid assets
The Group maintains a portfolio of highly marketable assets including
UK, US and Euro-area government bonds that can be sold or funded on
a secured basis as protection against any unforeseen interruption to cash
flow. The Group accesses secured funding markets in these assets on
a regular basis to ensure market access. The Group does not rely on
committed funding lines for protection against unforeseen interruption
to cash flow.
Diversification of liquidity sources
Sources of liquidity are regularly reviewed to maintain a wide diversification
by currency, geography, provider, product and term. In addition, to avoid
reliance on a particular group of customers or market sectors, the
distribution of sources and the maturity profile of deposits are also
carefully managed. Important factors in assuring liquidity are competitive
rates and the maintenance of depositors’ confidence. Such confidence
is based on a number of factors including the Group’s reputation and
relationship with those clients, the strength of earnings and the Group’s
financial position.