Barclays 2010 Annual Report Download - page 78

Risk management
Risk factors continued
Principal Risk Factor Principal Risk Management Key Specific Risks and Mitigation
4. Capital Risk
Capital Risk is the risk that the
Group has insufficient capital
resources to: ensure the
financial holding company is
well capitalised relative to the
minimum regulatory capital
requirements set out by the
UK FSA and US Federal Reserve;
ensure locally regulated
subsidiaries can meet their
minimum regulatory
requirements; support the
Group’s Risk Appetite and
economic capital requirements;
and support the Group’s
credit rating.
Primary responsibility for managing Capital Risk
rests with the Group Treasury Committee, which
has defined and implemented a Capital Risk
governance framework.
The Committee monitors the Group’s actual and
forecast capital positions on both a pre and post
stress basis. Stress testing considers the impact
to capital resources and requirements as a result
of macroeconomic stresses. The Committee also
considers major risks to the capital forecast such
as changes to the regulatory requirements.
The Group has a number of regulated legal entities
within the UK and overseas. Local management
has primary responsibility for ensuring these
entities comply with their local capital requirements.
Where necessary, injections of capital may be
made. Such injections are approved by Group
Treasury Committee.
For further information see pages 126 to 130.
Increasing Capital Requirements
There have been a number of recent developments in
regulatory capital requirements which are likely to have a
significant impact on the Group. Most significantly, during
2010, the Capital Requirement Directives 2 and 3 and the
guidelines from the Basel Committee for strengthening
capital requirements (Basel III) have been finalised.
Aligned to this, markets and credit rating agencies now
expect equity capital levels significantly in excess of the
current regulatory minimum.
As a result, and in anticipation of the future regulatory
changes, the Group continues to build its capital base
and actively manage its risk weighted assets. As at
31st December 2010, the Group’s Core Tier 1 Capital
ratio was 10.8% (2009: 10.0%).
For further information see pages 127, 128 and 141.
5. Liquidity Risk
Liquidity Risk is the risk that
the Group is unable to meet
its obligations as they fall due
resulting in: an inability to
support normal business
activity; failing to meet liquidity
regulatory requirements; or
rating agency concerns.
The Group maintains a substantial liquidity buffer
comprised of deposits with central banks and
investments in highly liquid securities or deposits.
Stress reporting for a number of liquidity scenarios
is run on a daily basis. These tests measure the
survival periods under Barclays defined stress
scenarios. Similar stresses are run for key entities
within the Group as well as at the Group level.
Since June 2010, the Group has also reported its
liquidity position against backstop Individual
Liquidity Guidance provided by the FSA.
Calibration of the Group’s liquidity framework
anticipated final FSA rules and is therefore broadly
consistent with current FSA standards.
Daily reporting monitors a number of indicators
of stress as well as daily cash activity.
Inability To Meet Obligations As They Fall Due,
At Reasonable Cost
As a result of sudden, large and potentially protracted
increases in cash outflows, the cash resources of the
Group could be severely depleted. These outflows could
be principally through customer withdrawals, wholesale
counterparties removing financing, ratings downgrades
or loan drawdowns. This could result in:
– limited ability to support client lending, trading activities
and investments;
– forced reduction in balance sheet and sales of assets;
– inability to fulfil lending obligations; and
– regulatory breaches under the liquidity standards
introduced by the FSA on 1st December 2009.
These outflows could be the result of general market
dislocations or specific concerns about Barclays.
For further information see pages 131 to 136.
76 Barclays PLC Annual Report 2010 www.barclays.com/annualreport10