Barclays 2010 Annual Report Download - page 133

Risk management
Liquidity risk management
All disclosures in this section (pages 131 to 136) are unaudited unless otherwise stated
Composition of the Group liquidity pool (audited) Cash and
deposits
with
central
banks
£bn
Government
guaranteed
bonds
£bn
Governments
and
supranational
bonds
£bn
Other
available
liquidity
£bn
Total
£bn
As at 31st December 2010 961 46 11 154
As at 31st December 2009 81 3 31 12 127
Liquidity risk is the risk that the Group is unable to meet
its obligations when they fall due as a result of a sudden,
and potentially protracted, increase in net cash outflows.
Such outflows would deplete available cash resources for
client lending, trading activities, investments and deposits.
In extreme circumstances lack of liquidity could result
in reductions in balance sheet and sales of assets, or
potentially an inability to fulfil lending commitments.
The risk that it will be unable to do so is inherent in all
banking operations and can be affected by a range of
institution-specific and market-wide events.
Organisation and structure (audited)
Barclays Treasury operates a centralised governance and control process
that covers all of the Group’s liquidity risk management activities.
Businesses assist Barclays Treasury in policy formation and limit setting by
providing relevant and expert input for their local markets and customers.
Execution of the Group’s liquidity risk management strategy is carried out
at country level within agreed policies, controls and limits, with the Country
Treasurer providing reports directly to Barclays Treasury to evidence
conformance with the agreed risk profile. Liquidity risk is a standing
agenda item at Country and Cluster Asset and Liability Committees and
on a consolidated basis is reported to the Group’s Treasury Committee.
The objective of the Group’s liquidity risk management strategy is to ensure
that the funding profile of individual businesses and the Group as a whole is
appropriate to underlying market conditions and the profile of our business
in each given country. Liquidity risk limits and controls are flexed to achieve
that profile and are based on regular qualitative and quantitative
assessments of conditions under both normal and stressed conditions.
Businesses are only allowed to have funding exposure to wholesale markets
where they can demonstrate that their market is sufficiently deep and liquid
and then only relative to the size and complexity of their business.
Liquidity limits reflect both local regulatory requirements as well as the
behavioural characteristics of their balance sheets. Breaches of limits are
reported to Treasury Committee together with details of the requirements
to return to compliance.
Liquidity risk framework (audited)
Barclays has a comprehensive Liquidity Risk Management Framework (the
Liquidity Framework) for managing the Group’s liquidity risk. The objective
of the Liquidity Framework is for the Group to have sufficient liquidity
to continue to operate for at least the minimum period specified by the
FSA in the event that the wholesale funding markets are neither open
to Barclays nor to the market as a whole. Stress tests applied under the
Liquidity Framework consider a range of possible wholesale and retail
factors leading to loss of financing including:
– Maturing of wholesale liabilities;
– Loss of secured financing and widened haircuts on remaining book;
– Retail and commercial outflows from savings and deposit accounts;
– Drawdown of loans and commitments;
– Potential impact of a 2 notch ratings downgrade; and
– Withdrawal of initial margin amounts by counterparties.
These stressed scenarios are used to assess the appropriate level for the
Group’s liquidity pool, which comprises unencumbered assets and central
bank deposits. Barclays regularly uses these assets to access secured
funding markets, thereby testing the liquidity assumptions underlying pool
composition. The Group does not presume the availability of central bank
borrowing facilities to monetise the liquidity pool in any of the stress
scenarios under the Liquidity Framework.
Liquidity pool (audited)
The Group liquidity pool as at 31st December 2010 was £154bn gross
(2009: £127bn) and comprised the following cash and unencumbered
assets (of which £140bn are FSA eligible). The Group maintains additional
liquid assets to support ongoing business requirements such as payment
services. The cost of the Group liquidity pool for 2010 has been allocated on
the basis of the projected stress outflows arising in each relevant business.
Barclays PLC Annual Report 2010 www.barclays.com/annualreport10 131
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