Barclays 2007 Annual Report Download - page 84

Risk management
Barclays approach to risk management
82 Barclays PLC Annual Report 2007
Barclays approach to risk management
Barclays approach to risk management involves a number
of fundamental elements that drive our processes across
the Group:
The Group’s Risk appetite sets out the level of risk that the
Bank is willing to take in pursuit of its business objectives.
This is expressed as the Group’s appetite for earnings volatility
across all businesses from credit, market, and operational risk.
It is calibrated against our broad financial targets, including
income and impairment targets, dividend coverage and
capital levels. It is prepared each year as part of the Group’s
Medium Term Planning process, and combines a top-down
view of the Bank’s risk capacity with a bottom-up view of the
risk profile requested and recommended by each business.
This entails making business plan adjustments as necessary
to ensure that our Medium Term Plan creates a risk profile
that meets our Risk Appetite (page 86).
The Principal risk policy covers the Group’s main risk types,
assigning responsibility for the management of specific risks,
and setting out the requirements for control frameworks for
all of the risk types. The individual control frameworks are
reinforced by a robust system of review and challenge, and
a governance process of aggregation and broad review
by businesses and risk across the Group (page 83).
Barclays Risk methodologies include systems that enable
the Group to measure, aggregate and report risk for internal
and regulatory purposes. As an example, our credit grading
models produce Internal Ratings through internally derived
estimates of default probabilities. These measurements
are used by management in an extensive range of decisions,
from credit grading, pricing and approval to portfolio
management, economic capital allocation and capital
adequacy processes (page 85).
Risk management is a fundamental part of Barclays business activity and
an essential component of its planning process. To keep risk management
at the centre of the executive agenda, it is embedded in the everyday
management of the business.
Barclays ensures that it has the functional capacity to manage the risk
in new and existing businesses. At a strategic level, our risk management
objectives are:
– To identify the Group’s material risks and ensure that business profile
and plans are consistent with risk appetite.
– To optimise risk/return decisions by taking them as closely as possible
to the business, while establishing strong and independent review and
challenge structures.
– To ensure that business growth plans are properly supported by
effective risk infrastructure.
– To manage risk profile to ensure that specific financial deliverables
remain possible under a range of adverse business conditions.
– To help executives improve the control and coordination of risk taking
across the business.
In pursuit of these objectives, Group Risk breaks down risk management
into five discrete processes: direct, assess, control, report, and
manage/challenge (see panel below).
– Understand the principal risks to achieving
Group strategy.
– Establish Risk Appetite.
– Establish and communicate the risk
management framework including
responsibilities, authorities and key controls.
StrategyProcess
Direct
– Establish the process for identifying and
analysing business-level risks.
– Agree and implement measurement and
reporting standards and methodologies.
Assess
– Establish key control processes and practices,
including limit structures, impairment
allowance criteria and reporting requirements.
– Monitor the operation of the controls and
adherence to risk direction and limits.
– Provide early warning of control or appetite
breaches.
– Ensure that risk management practices and
conditions are appropriate for the business
environment.
Control
– Interpret and report on risk exposures,
concentrations and risk-taking outcomes.
– Interpret and report on sensitivities and
Key Risk Indicators.
– Communicate with external parties.
Report
– Review and challenge all aspects of the
Group’s risk profile.
– Assess new risk-return opportunities.
– Advise on optimising the Group’s risk profile.
– Review and challenge risk management
practices.
Manage
and
Challenge