Barclays 2008 Annual Report Download - page 127

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Business review
Barclays PLC Annual Report 2008 125
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 critical process: any failure to meet specific
intraday commitments would have significant consequences, such as a
visible market disruption.
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.
In practice, the Group maintains a significant buffer of surplus intraday
liquidity to ensure that payments are made on a timely basis.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 is managed through limits on wholesale borrowings,
secured borrowings and funding mismatches. These ensure that on
any day and over any period there is a limited amount of refinancing
required. These requirements include replenishment of funds as they
mature or are borrowed by customers. The Retail and Commercial Bank
together with Wealth maintain no reliance on wholesale funding. The
Group maintains an active presence in global money markets through
Barclays Capital 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 term
mismatches between assets and liabilities, as well as 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. The Group does not rely on committed funding lines for
protection against unforeseen interruptions 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 strength
of relationships 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.
Structural liquidity
An important source of structural liquidity is provided by our core retail
deposits in the UK, Europe and Africa, mainly current accounts and
savings accounts. Although current accounts are repayable on demand
and savings accounts at short notice, the Group’s broad base of customers
– numerically and by depositor type – helps to protect against unexpected
fluctuations. Such accounts form a stable funding base for the Group’s
operations and liquidity needs.
The Group policy is to fund the balance sheet of the Retail and
Commercial Bank together with Wealth and Head office functions on a
global basis with customer deposits and capital without recourse to the
wholesale markets. This provides protection from the liquidity risk of
wholesale market funding. The exception to this policy is Absa, which has
a large portion of wholesale funding due to the structural nature of the
South African financial sector.
Scenario analysis and stress testing
Stress testing is undertaken to assess and plan for the impact of various
scenarios which may put the Group’s liquidity at risk.
Treasury develops and monitors a range of stress tests on the Group’s
projected cash flows. These stress scenarios include Barclays-specific
scenarios such as an unexpected rating downgrade and operational problems,
and external scenarios such as Emerging Market crises, payment system
disruption and macro-economic shocks. The output informs both the
liquidity mismatch limits and the Group’s contingency funding plan.
This is maintained by Treasury and is aligned with the Group and country
business resumption plans to encompass decision-making authorities,
internal and external communication and, in the event of a systems failure,
the restoration of liquidity management and payment systems.
Risk management
Liquidity risk management
Key elements
Wholesale depositor split by geography
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2
3
45
1North America
2UK
3Europe
4Japan
5Far East (excluding Japan)
6Emerging Markets
7Supra-national
67
Wholesale depositor split by counterparty type
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2
3
4
5
1Asset managers
2Banks
3Corporates
4Money funds
5Governments
6Central banks
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