Barclays 2013 Annual Report Download - page 390

Risk management
Barclays risk management strategy continued
Measure relevant to strategy and risk Link between strategy and risk profile
Profit before tax, Fundamental economic and business indicators, which best describes shareholder focus in terms
of profitability and ability to use capital resources efficiently.
Return on equity,
Return on RWAs
Loan loss rate (LLR) Describes the credit risk profile and whether impairment is within appetite.
Core Tier 1 and leverage ratios Monitors our capital adequacy in relation to capital plan.
Dividends Measures the risks of being able to continue paying appropriate dividends.
In summary, the stress levels represent the risk tolerance of Barclays in
terms of its key objectives. These objectives act as constraints on risk
performance and imply maximum levels of acceptable losses that are
tracked quarterly and reported to the Board. Any breaches must be
approved and remedial actions mandated.
Mandate and Scale
The second element to the setting of risk appetite in Barclays is an
extensive system of Mandate and Scale limits, which is a risk
management approach that seeks to formally review and control
business activities to ensure that they are within Barclays mandate (i.e.
aligned with expectations), and are of an appropriate scale (relative to
the risk and reward of the underlying activities). Barclays achieves this
by using limits and triggers to avoid concentrations which would be
out of line with expectations, and which may lead to unexpected losses
of a scale that would be detrimental to the stability of the relevant
business line or the Group. These limits are set by the independent risk
function, formally monitored each month and subject to Board-level
oversight.
For example, in our commercial property finance and construction
portfolios, a comprehensive series of limits are in place to control
exposure within each business and geographic sector. To ensure that
limits are aligned to the underlying risk characteristics, the Mandate
and Scale limits differentiate between types of exposure. There are, for
example, individual limits for property investment and property
development.
Barclays uses the Mandate and Scale framework to:
 Limit concentration risk;
 Keep business activities within Group and individual business
mandate;
 Ensure activities remain of an appropriate scale relative to the
underlying risk and reward; and
 Ensure risk taking is supported by appropriate expertise and
capabilities.
As well as Group-level Mandate & Scale limits, further limits are set by
risk managers within each business unit, covering particular portfolios.
Interaction of risk appetite with business strategy
The strategy and business activities are reflected in key performance
metrics, which are dependent in large part on risk performance. Risk
appetite, as described above, helps to ensure that the strategy is
adaptable to various degrees of financial stress.
Each year, the MTP process ensures that appetite takes account of the
strategy (detailed in the Barclays risk management strategy section on
page 386).
The Group risk profile developing in the plan is assessed in the financial
volatility scenarios via a bottom-up process; this is then compared with
the top-down view articulated via the key financial metrics described
above. Any gap between the two views is challenged by management
in order to re-balance the risk profile and bring the bottom-up risk
appetite back within top-down appetite.
For further information on Risk factors and the Operating and business
environment, refer to the Risk factors section (see pages 133 to 141).
Stress testing
Group-wide stress tests are an integral part of the annual MTP process
and annual review of risk appetite to ensure that the Group’s financial
position and risk profile provide sufficient resilience to withstand the
impact of severe economic stress. The following diagram outlines the
key steps in the Group-wide stress testing process, which are described
below. Barclays also maintains Recovery Plans which consider actions
to facilitate recovery from severe stress or an orderly resolution. These
actions are additional to those included in the Group-wide stress
testing process described in this section.
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388 Barclays PLC Annual Report 2013