Barclays 2013 Annual Report Download - page 420

Liquidity Risk
Liquidity risk is the risk that a firm, although
solvent, either does not have sufficient financial
resources available to enable it to meet its
obligations as they fall due, or can secure such
resources only at excessive cost. This also results
in a firm’s inability to meet regulatory liquidity
requirements. This risk is inherent in all banking
operations and can be affected by a range of
Group-specific and market-wide events.
These disclosures are unaudited unless otherwise stated
Overview (audited)
The Board has formally recognised a series of risks that are
continuously present in Barclays and materially impact the
achievement of Barclays’ objectives one of which is Funding risk.
Liquidity risk is recognised as a Key risk within Funding risk. The
efficient management of liquidity is essential to the Group in retaining
the confidence of the financial markets and ensuring that the business
is sustainable. Liquidity risk is managed through the Liquidity Risk
Management Framework (the Liquidity Framework) which is designed
to maintain liquidity resources that are sufficient in amount and quality
and a funding profile, which is appropriate to maintain market
confidence in the Group’s name and meet the liquidity risk appetite as
expressed by the Board.
This is achieved via a combination of policy formation, review and
governance, analysis, stress testing, limit setting and monitoring.
Together, these meet internal and regulatory requirements.
Governance and organisation (audited)
Barclays Treasury operates a centralised governance control process
that covers all of the Group’s liquidity risk management activities by the
Board Financial Risk Committee. The Liquidity Framework is subject to
annual review. The Liquidity Framework describes liquidity policies and
controls that the Group has implemented to manage liquidity risk
within the Liquidity Risk Appetite.
The Board sets the Group’s Liquidity Risk Appetite (LRA), being the
level of risk the Group chooses to take in pursuit of its business
objectives and in meeting its regulatory obligations. The Treasury
Committee is responsible for the management and governance of the
mandate defined by the Board and includes the following sub-
committees:
 The Balance Sheet Management Committee – provides a co-
ordinated forum to oversee the management and governance of
Balance Sheet Management including behavioural mismatch,
structural risk, and transfer pricing;
 The Investment Advisory Group supervises the investment of a
portion of the Group’s liquidity pool in longer dated liquid assets. The
Investment Advisory Group approves a detailed allocation framework
across assets and tenors, and reviews the performance and risks
associated with these holdings. The holdings are subject to limits set
by the Board Financial Risk Committee and by the independent
Group market and credit risk functions; and
 The Funding and Liquidity Risk Committee, a sub-committee of the
Balance Sheet Management Committee, is responsible for the review,
challenge and recommendation of the Liquidity Framework to the
Treasury Committee.
Liquidity risk framework
Barclays has a comprehensive Liquidity Framework for managing the
Group’s liquidity risk. The Liquidity Framework is designed to deliver
the appropriate term and structure of funding consistent with the
Liquidity Risk Appetite set by the Board.
The Liquidity Framework incorporates a range of ongoing business
management tools to monitor, limit and stress test the Group’s balance
sheet and contingent liabilities and a Contingency Funding Plan. Limit
setting and transfer pricing are tools that are designed to control the
level of liquidity risk taken and drive the appropriate mix of funds,
which together reduce the likelihood that a liquidity stress event could
lead to an inability to meet the Group’s obligations as they fall due. The
stress tests assess potential contractual and contingent stress outflows
under a range of scenarios, which are then used to determine the size
of the liquidity pool that is immediately available to meet anticipated
outflows, if a stress occurred.
The Group maintains a Contingency Funding Plan which details how
liquidity stress events of varying severity would be managed. Since the
precise nature of any stress event cannot be known in advance, the
plans are designed to be flexible to the nature and severity of the stress
event and provide a menu of options that could be used as appropriate
at the time. Barclays also maintains Recovery Plans which consider
actions to generate additional liquidity in order to facilitate recovery in
a severe stress.
Ongoing business
management
■ LRA and Planning
■ Liquidity limits
■ Early Warning
Indicators Committee
Early signs/
Mild stress
■ Monitoring and review
■ Low cost actions and
balance sheet optimism
Severe Stress
■ Activate Contingency
Funding Plan
■ Balance sheet reduction
and business limitations
Recovery
■ Asset and liability
actions to generate
additional liquidity
Resolution
■ Ensure an orderly
resolution can be carried
out if necerssary, without
adverse systemic risk or
exposing the public fund
to loss
Risk management
Liquidity risk management
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418 Barclays PLC Annual Report 2013