Barclays 2013 Annual Report Download - page 421

Ongoing business management
Risk appetite and planning
Under the Liquidity Framework, Barclays has established a Liquidity
Risk Appetite (LRA) together with the appropriate limits for the
management of the liquidity risk. This is the level of liquidity risk the
Group chooses to take in pursuit of its business objectives and in
meeting its regulatory obligations. The key expression of the liquidity
risk is through internal stress tests. This involves comparing the
liquidity pool with anticipated stressed net contractual and contingent
outflows for each of three stress scenarios.
The LRA is reviewed on a continuous basis and is subject to formal
Board approval at least annually. The Group runs three primary liquidity
stress scenarios, aligned to the PRA’s prescribed stresses:
 90 day market-wide stress event;
 30 day Barclays-specific stress event; and
 30 day combined market-wide and Barclays-specific stress event.
In addition to the liquidity pool, the Liquidity Framework provides for
other management actions, including generating liquidity from other
liquid assets on the Group’s balance sheet in order to meet additional
stress outflows, or to preserve or restore the Liquidity Pool in the event
of a liquidity stress
Liquidity limits
Barclays manages limits on a variety of on and off-balance sheet exposures, a sample of which is shown in the table below. These limits serve to
control the overall extent and composition of liquidity risk taken by managing exposure to the cash outflows.
Examples of Liquidity Limits
Money market framework FX Cashflow limits Concentration limits Structurered Notes limits
Secured Mismatch limits Debt Buyback limits Off-Balance Sheet
commitment limits
Ratings Downgrade limits
Internal pricing and incentives
Barclays actively manages the composition and duration of the balance
sheet and of contingent liquidity risk through the transfer of liquidity
premium directly to business units. Liquidity premiums are charged
and credited to businesses according to the behavioural life of assets
and liabilities and contingent liquidity risk. These transfer pricing
mechanisms are designed to ensure that liquidity risk is reflected in
product pricing and performance measurement, thereby ensuring that
the Liquidity Framework is integrated into business level decision
making to drive the appropriate mix of sources and uses of funds.
Early warning indicators
Barclays monitors a range of market indicators for early signs of
liquidity risk either in the market or specific to Barclays, a sample of
which are shown in the table below. These are designed to immediately
identify the emergence of increased liquidity risk to maximise the time
available to execute appropriate mitigating actions. Deterioration in
Early Warning Indicators can lead to invocation of the Group’s
Contingency Funding Plan, which provides a framework for how the
liquidity stress would be managed.
Examples of Early Warning Indicators
Change in composition of deposits
Widening CDS spreads
Level of debt buybacks
Change in maturity profile
Rising funding costs
Repo haircut widening
Contingency Funding Plan and Recovery Resolution Plan
Barclays maintains a Contingency Funding Plan (CFP), which is
designed to provide a framework where a liquidity stress could be
effectively managed. The CFP is proportionate to the nature, scale and
complexity of the business and is tested to ensure that it is
operationally robust. The CFP details the circumstances in which the
plan could be invoked, including as a result of adverse movements in
Liquidity Early Warning Indicators. As part of the plan the Barclays
Treasurer has established a Liquidity Management Committee (LMC)
On invocation of the CFP, the LMC would meet to identify the likely
impact of the event on the Group and determine the response, which
would be proportionate to the nature and severity of the stress.
The CFP provides a communication plan and includes management
actions to respond to liquidity stresses of varying severity. These could
include monetising the liquidity pool, slowing the extension of credit
and increasing the tenor of funding.
The Group continues to work with the authorities on recovery and
resolution planning (RRP). The Group made its first formal RRP
submissions to the UK and US regulators in mid-2012 and has since
continued to work with the authorities to identify and address any
impediments to resolvability.
Barclays also maintains a Group Recovery Plan, which details potential
actions in the event of a severe stress including securitising or selling
assets, disposals, divestment and capital raising.
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