Barclays 2008 Annual Report Download - page 74

72 Barclays PLC Annual Report 2008 |Find out more at www.barclays.com/annualreport08
Risk management
Risk factors
– monitoring of undrawn lending commitments, overdrafts and
contingent liabilities; and
– diversification of liquidity sources by geography and provider.
During periods of market dislocation, such as those currently ongoing,
the Group’s ability to manage liquidity requirements may be impacted
by a reduction in the availability of wholesale term funding as well as an
increase in the cost of raising wholesale funds. Asset sales, balance sheet
reductions and the increasing costs of raising funding will affect the
earnings of the Group.
In illiquid markets, the Group may decide to hold assets rather than
securitising, syndicating or disposing of them. This could affect the
Group’s ability to originate new loans or support other customer
transactions as both capital and liquidity are consumed by existing or
legacy assets.
The Group’s liquidity risk management and measurement
methodologies are detailed in the ‘Liquidity Risk Management’ section
on page 125 and the ‘Liquidity Risk’ note to the financial statements
on page 282.
Capital risk
Capital risk is the risk that the Group has insufficient capital resources to:
– meet minimum regulatory capital requirements in the UK and in
other jurisdictions such as the United States and South Africa where
regulated activities are undertaken. The Group’s authority to operate
as a bank is dependent upon the maintenance of adequate capital
resources;
– support its credit rating. A weaker credit rating would increase the
Group’s cost of funds;
– support its growth and strategic options.
During periods of market dislocation, increasing the Group’s capital
resources may prove more difficult or costly. Regulators have also recently
increased the Group’s capital targets and amended the way in which
capital targets are calculated and may further do so in future. This would
constrain the Group’s planned activities and contribute to adverse impacts
on the Group’s earnings.
The Group’s capital management objectives and processes are
detailed in the ‘Capital risk management’ section on page 128.
Operational risk
Operational risk is the risk of direct or indirect losses resulting from human
factors, external events, and inadequate or failed internal processes and
systems. Operational risks are inherent in the Group’s operations and are
typical of any large enterprise. Major sources of operational risk include
operational process reliability, IT security, outsourcing of operations,
dependence on key suppliers, implementation of strategic change,
integration of acquisitions, fraud, human error, customer service quality,
regulatory compliance, recruitment, training and retention of staff, and
social and environmental impacts.
The Group’s operational risk management and measurement
methodologies are detailed in the ‘Operational risk management’ section
on page 131.
Financial crime risk
Financial crime risk is a category of operational risk. It arises from the risk
that the Group might fail to comply with financial crime legislation and
industry laws on anti-money laundering or might suffer losses as a result
of internal or external fraud, or might fail to ensure the security of
personnel, physical premises and the Group’s assets.
The Group’s financial crime management and processes are detailed
in the ‘Financial crime risk management’ section on page 134.
Regulatory compliance risk
Regulatory compliance risk arises from a failure or inability to comply fully
with the laws, regulations or codes applicable specifically to the financial
service industry. Non-compliance could lead to fines, public reprimands,
damage to reputation, enforced suspension of operations or, in extreme
cases, withdrawal of authorisations to operate.
In addition, the Group’s businesses and earnings can be affected by
the fiscal or other policies and other actions of various governmental and
regulatory authorities in the United Kingdom, the European Union (‘EU’),
the United States, South Africa and elsewhere. All these are subject to
change, particularly in the current market environment where recent
developments in the global markets have led to an increase in the
involvement of various governmental and regulatory authorities in the
financial sector and in the operations of financial institutions. In particular,
governmental and regulatory authorities in the United Kingdom, the
United States and elsewhere are implementing measures to increase
regulatory control in their respective banking sectors, including by
imposing enhanced capital requirements or by imposing conditions on
direct capital injections and funding. Any future regulatory changes may
potentially restrict the Group’s operations, mandate certain lending
activity and impose other compliance costs. It is uncertain how the more
rigorous regulatory climate will impact financial institutions, including
the Group.