Barclays 2012 Annual Report Download - page 342

Capital risk management overview (audited)
Capital risk is the risk that the Group has insufficient capital
resources to:
 Meet minimum regulatory 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; or
 Support its growth and strategic options.
Capital Management is integral to the Group’s approach to financial
stability and sustainability management and is therefore embedded in
the way our Businesses and Legal Entities operate. Our Capital
Management strategy is driven by the strategic aims of the Group and
the risk appetite set by the Board.
Our objectives are achieved through well embedded capital management practices:
Primary Objectives Core Practices
Provide a viable and sustainable business offering by maintaining
adequate capital to cover the Group’s current and forecast business
needs and associated risks
 Maintain a capital plan on a short term and medium term basis
aligned with strategic objectives
 Meet minimum regulatory requirements at all times in the UK and in
all other jurisdictions that the Group operates in, such as the United
States and South Africa where regulated activities are undertaken
Ensure the Group and legal entities maintain adequate capital to
withstand the impact of the risks that may arise under the stressed
conditions analysed by the Group
 Perform Group-wide internal and regulatory stress tests
 Maintain capital buffers over regulatory minimums
 Develop contingency plans for severe (stress management actions)
and extreme stress tests (recovery actions)
Support a strong credit rating  Maintain capital ratios aligned with rating agency expectations
Our approach to capital risk management
We adopt a forward-looking, risk based approach to Capital Risk
Management. Capital demand and supply is actively managed on a
centralised basis, at a business level, at a local entity level and on a
regional basis taking into account the regulatory, economic and
commercial environment in which Barclays operates.
Capital planning
Capital forecasts are managed on a top-down and bottom-up analysis
through both Short Term (Year 1 monthly) and Medium Term (3 year)
financial planning cycles. Our capital plans are developed with the
objective of maintaining capital that is adequate in quantity and quality
to support our risk profile and business needs. As a result the Group
holds a diversified pool of capital resources that provides strong loss
absorbing capacity and optimised returns.
Our capital plans are continually monitored against internal target
capital ratios to ensure they remain appropriate, and to consider risks
to the plan including possible future regulatory charges.
Local management ensures compliance with an entity’s minimum
regulatory capital requirements by reporting to local Asset and Liability
Committees with oversight by the Group’s Capital Committee, as
required.
Capital allocation
Capital allocations are approved by the Group Executive Committee
and monitored by the Treasury Committee, taking into consideration
the risk appetite, growth and strategic aims of the Group. Barclays
Bank PLC (BBPLC) is the primary source of capital to its legal entities.
Regulated legal entities are, at a minimum, allocated adequate capital
to meet their current and forecast regulatory and business
requirements.
Risk identification
Capital demand is assessed and quantified for credit, market,
operational, interest rate risk on the banking book, pension obligation
risk and securitisation risks, in line with the FSA’s regulatory
requirements.
Treasury works closely with Group Risk, businesses and legal entities to
support a proactive approach to identifying sources of capital ratio
volatilities which are incorporated in the Group’s capital plan. We
monitor capital risks against firm-specific and macroeconomic early
warning indicators and report to Treasury Committee, associated with
clear escalation channels to senior management.
Stress testing
Internal stress testing is undertaken to quantify and understand the
impact of sensitivities on the capital plan and capital ratios, arising
from 1 in 7 year and 1 in 25 year stresses. Actual recent economic,
market and peer institution stresses are used to inform the
assumptions of our stress tests and assess the effectiveness of our
mitigations strategies.
Group also undertakes stress tests prescribed by the FSA and ECB.
Legal entities undertake stress tests prescribed by their local regulators.
These stress tests inform decisions on the size and quality of capital
buffer required and the results are incorporated into the Group capital
plan to ensure adequacy of capital under normal and severe, but
plausible stressed conditions.
barclays.com/annualreport340 I Barclays PLC Annual Report 2012
Risk management
Capital risk management