Barclays 2013 Annual Report Download - page 423

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 PRA’s regulatory
requirements.
Barclays 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. Capital risks against firm-specific and macroeconomic early
warning indicators are monitored and reported to the 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 the stress tests and assess the effectiveness of
mitigations strategies.
The Group also undertakes stress tests prescribed by the PRA 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.
Risk mitigation
As part of the stress testing process actions are identified that should
be taken to mitigate risks that could arise in the event of material
adverse changes in the current economic and business outlook.
As an additional layer of protection, the Barclays Recovery Plan defines
the actions and implementation strategies available for the Group to
increase or preserve capital resources in the event that stress events are
more extreme than anticipated. In addition, the strong regulatory focus
on resolvability has continued in 2013, from both UK and international
regulators. The Group continues to work with the authorities on
recovery and resolution planning (RRP), and the detailed practicalities
of the resolution process, including the provision of information that
would be required in the event of a resolution, so as to enhance
Barclays resolvability (a Citizenship commitment made in May 2012).
Transferability of capital
The Group’s policy is for surplus capital held in Group entities to be
repatriated to BBPLC in the form of dividends and/or capital
repatriation, subject to local regulatory requirements, exchange
controls and tax implications. This approach provides optimal flexibility
on the redeployment of capital across legal entities. The Group is not
aware of any material impediments to the prompt transfer of capital
resources, in line with the above policy, or repayment of intra-group
liabilities when due.
Governance
The Group and legal entity capital plans are underpinned by the Capital
Management Framework, which includes the capital management
policies and practices approved by the Capital Committee. These are
implemented consistently and aimed at delivering on the Group
objectives.
Group Treasury Committee and the Board approve the Group capital
plan, stress tests and Recovery Plan. The Group Treasury Committee
also manages compliance with the Group’s capital management
objectives and reviews actual and forecast capital demand and
resources on a monthly basis. The Board Financial Risk Committee
annually reviews risk appetite and then analyses the impacts of stress
scenarios on the Group capital forecast (see pages 70 to 72) in order to
understand and manage the Group’s projected capital adequacy.
Resources
Global teams operate in accordance with the Group’s policies and
procedures, having direct access to local regulators and businesses in
order to support individual capital management at a legal entity level.
Senior Management awareness and transparency
Capital ratios, early warning indicators and movements in capital
demand and supply are reported to Group Treasury Committee
monthly.
Capital management information is readily available at all times to
support the Executive Management’s strategic and day-to-day
business decision making, as may be required.
The Group submits its Board approved ICAAP document to the PRA on
an annual basis, which forms the basis of the Individual Capital
Guidance (ICG) set by the PRA.
Pillar 3 disclosures are approved by the Board and publicly available as
a separate document in line with the Basel 3 and PRA requirements.
Ongoing capital management risks
Capital ratio sensitivity to foreign exchange rate movements
The Group has capital resources and RWAs denominated in foreign
currencies. Changes in foreign exchange rates result in changes in the
GBP equivalent value of foreign currency denominated capital
resources and RWAs. As a result, the Group’s regulatory capital ratios
are sensitive to foreign currency movements.
The Group’s capital ratio management strategy is to minimise the
volatility of the capital ratios caused by foreign exchange rate
movements. To achieve this, the Group aims to maintain the ratio of
foreign currency CET 1, Tier 1 and Total capital resources to foreign
currency RWAs the same as the Group’s consolidated capital ratios.
The Group’s investments in foreign currency subsidiaries and branches,
to the extent that they are not hedged for foreign exchange
movements, translate into GBP upon consolidation creating CET1
capital resources sensitive to foreign currency movements. Changes in
the GBP value of the investments due to foreign currency movements
are captured in the currency translation reserve, resulting in a
movement in CET1 capital.
To create foreign currency Tier 1 and Total Capital resources additional
to the CET1 capital resources, the Group issues, where possible, debt
capital in non-GBP currencies. This is primarily achieved by the
issuance of debt capital from Barclays Bank PLC in USD and EUR, but
can also be achieved by subsidiaries issuing capital in local currencies,
such as Barclays Africa Group Limited in South Africa.
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