Barclays 2007 Annual Report Download - page 236

Notes to the accounts
For the year ended 31st December 2007
234 Barclays PLC Annual Report 2007
45 Financial risks
Financial risk management
Barclays PLC is a major global financial services provider engaged in retail and commercial banking, credit cards, investment banking, wealth
management and investment management services. Financial instruments are fundamental to the Group’s business and managing financial risks,
especially credit risk, is a fundamental part of its business activity. Barclays achieves its risk management goals by keeping risk management at the centre
of the executive agenda and by building a culture where risk management is part of everyday business decision-making. Barclays ensures that it has the
capacity to manage the risk in its established businesses as well as new and growing ones, and that its business plans are consistent with risk appetite,
that is, the level of risk Barclays is willing to accept in fulfilling its business objectives.
Barclays risk management policies and processes are designed to identify and analyse risk, to set appropriate risk appetite, limits, and controls, and to
monitor the risks and adherence to limits by means of reliable and up-to-date data. Risk management policies, models and systems are regularly reviewed
to reflect changes to markets, products and best market practice. Individual responsibility and accountability, instilled through training, are designed to
deliver a disciplined, conservative and constructive culture of risk management and control.
Risk responsibilities
The Board approves risk appetite and the Board Risk Committee monitors the Group’s risk profile against this appetite:
– The Group Risk Director, under delegated authority from the Group Chief Executive and Group Finance Director, has responsibility for ensuring
effective risk management and control;
– Business Heads are responsible for the identification and management of risk in their businesses;
– Business risk teams, each under the management of a Business Risk Director, are responsible for assisting Business Heads in the identification and
management of their business risk profiles for implementing appropriate controls. These risk management teams also assist Group Risk in the
formulation of Group Risk policy and the implementation of it across the businesses;
– Within Group risk, Risk-Type Heads and their teams are responsible for establishing a risk control framework and risk oversight; and
– Internal Audit is responsible for the independent review of risk management and the control environment.
Oversight of risk management is exercised by the Risk Oversight Committee which is chaired by the Group Risk Director under authority delegated by the
Group Finance Director. The Risk Oversight Committee oversees management of the Group’s risk profile, exercised through the setting, review and
challenge of the size and constitution of the profile when viewed against the Group risk appetite.
The Group Executive Committee monitors and manages risk-adjusted performance of businesses and receives a regularly quarterly risk update including
a copy of the Group Risk Profile Report.
The Board Risk Committee (BRC) reviews the Group risk profile, approves the Group Control Framework and approves minimum control requirements for
principal risks.
The Board Audit Committee (BAC) considers the adequacy and effectiveness of the Group Control Framework and receives quarterly reports on control
issues of significance and half-yearly reports on impairment allowances and regulatory reports.
Both BRC and BAC also receive reports dealing in more depth with specific issues relevant at the time. The proceedings of both Committees are reported
to the full Board. The Board approves the overall Group risk appetite.
The Risk Oversight Committee is chaired by the Group Risk Director and oversees the management of the Group’s risk profile and all of its significant risks.
Oversight is exercised through the setting, review and challenge of the size and constitution of the profile when viewed against the Group’s risk appetite.
It has delegated and apportioned responsibility for credit risk management to the Retail and Wholesale Credit Risk Management Committees.
The main financial risks affecting the Group are discussed in Notes 46 to 48.
46 Market risk
Market risk is the risk that Barclays 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, commodity prices, equity prices and foreign exchange rates.
Most market risk arises from trading activities. Barclays is also exposed to interest rate and potential foreign exchange risks arising from financial assets
and liabilities not held for trading.
Market risk management and control responsibilities
The Board approves the overall market risk appetite. The Market Risk Director is responsible for the market risk control framework and, under delegated
authority from the Group Risk Director, sets a limit framework within the context of the approved market risk appetite.
The head of each business, assisted by the business risk management team, is accountable for identifying, measuring and managing all market risks
associated with the business’ activities. Oversight and support is provided by the Market Risk Director, assisted by the central market risk team.
Market risk measurement
The measurement techniques used to measure and control market risk include:
– Daily Value at Risk;
– Stress Tests; and
– Annual Earnings at Risk.
Daily Value at Risk (DVaR)
DVaR is an estimate of the potential loss which might arise from unfavourable market movements, if the current positions were to be held unchanged for
one business day, measured to a confidence level of 98%. Daily losses exceeding the DVaR figure are likely to occur, on average, twice in every 100
business days.
In Barclays Capital, DVaR is an important market risk measurement and control tool. DVaR is calculated using the historical simulation method with a
historical sample of two years.