Barclays 2013 Annual Report Download - page 391

Scenario
design and
parameter
setting
Businesses
prepare
MTP/business
plans
Businesses
run stress
testing
models
Review and
challenge
Results
(pre/post-
business
management
actions
Stress testing management actions
Pre-recovery plan
Recovery actions
Resolution
Capital plan
including
capital
management
actions
Committee
presentations
and approval
 Scenario design and setting: BFRC agrees the range of scenarios to
be tested and the independent Group Risk function leads the
process. Macroeconomic stress test scenarios are designed to be
both severe and plausible, and relevant to our business. The following
diagram summarises the process for designing and agreeing the
scenarios to be run. The process includes Group Risk consultation
with economists in the businesses. This ensures relevance of
scenarios to our businesses and a consistent interpretation of the
scenarios across the Group.
Group Risk
develops scenario
themes in
consultation with
economists within
the businesses
Board Financial Risk
Committee provides
input and agrees on
scenario themes
Economic
parameters set
by Group Risk
Economic
parameters reviewed
by economists within
the businesses
Stress test scenarios
and economic
parameters issued
by Group Risk
Scenario design and setting
At the Group level, stress test scenarios capture a wide range of
macroeconomic variables that are required to assess the impact of the
stress scenario for each portfolio, and reflect the wide range of models
used across the Group to assess the impact of the stress. This includes
for example, GDP, unemployment, asset prices, foreign exchange rates
and interest rates. Economic parameters are set using expert
judgement and are calibrated using historical and quantitative analysis
to ensure internal coherence and appropriate severity. In addition, our
scenarios are tested against the PRA’s stress test scenarios.
Examples of types of scenarios/themes run as Group-wide stress tests
include:
 A global recession scenario capturing the wide range of businesses
across Barclays;
 US-centred macroeconomic scenario; and
 A peripheral Eurozone stress as part of the reverse stress testing
framework (see page 391).
 Businesses prepare MTP/business plans: each business prepares
detailed business plans which are used as the baseline for running
their stress test analysis. The MTP business plans are prepared at
performance cell level across a detailed set of performance metrics
covering income, impairment, balance sheet and RWA information
(which is also reflected in the stress testing results) – see page 386
for further details on the MTP process. The stress testing results are
used to inform MTP business plans, so there may be a number of
iterations before the MTP business plans are finalised.
 Businesses run stress testing models: the stress testing process is
detailed and comprehensive using bottom-up analysis performed by
each of Barclays’ businesses, covering detailed performance metrics
as outlined above and results are produced for each performance
cell. It includes all aspects of the Group’s balance sheet across all risk
types and is forward looking over a five year period. Our stress testing
approach combines running statistical models with expert
judgement to ensure the results accurately reflect the impact of the
stress test economic scenario.
An overview of our stress testing approach by Principal Risk is provided
in the table below:
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