Barclays 2014 Annual Report Download - page 136

134 I Barclays PLC Annual Report 2014 barclays.com/annualreport
Risk review
Risk management
Liquidity risk management
Overview
Liquidity risk is recognised as a Key Risk within funding risk. 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, 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.
Organisation and structure
Barclays Treasury operates a centralised governance control process
that covers all of the Group’s liquidity risk management activities. As
required under the Enterprise Risk Management Framework the
Treasury Key Risk Officer (KRO) approves the Liquidity Framework
under which the treasury function operates. The Treasury KRO reports
into the Head of Financial Risk (Principal Risk Officer) and has an
independent reporting line to the risk function. 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:
Q The Funding and Liquidity Risk Committee is responsible for the
review, challenge and recommendation of the Liquidity Framework
to the Treasury Committee; and
Q The Liquidity Management Committee, which is responsible for
managing the liquidity of the Group through a liquidity event.
Liquidity risk management framework
The Group has a comprehensive Liquidity Framework for managing the
Group’s liquidity risk. The Liquidity Framework describes liquidity
policies and controls that the Group has implemented to manage
liquidity risk within the LRA. The Liquidity Framework is designed to
deliver the appropriate term and structure of funding consistent with
the LRA set by the Board.
Liquidity is monitored and managed on an on-going basis through:
Risk appetite and planning: established LRA together with the
appropriate limits for the management of 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.
Liquidity limits: management of limits on a variety of on and off-
balance sheet exposures and these serve to control the overall extent
and composition of liquidity risk taken by managing exposure to the
cash outflows.
Internal pricing and incentives: active management of the composition
and duration of the balance sheet and of contingent liquidity risk
through the transfer of liquidity premium directly to the businesses.
Early warning indicators: monitoring of a range of market indicators for
early signs of liquidity risk in the market or specific to Barclays. These
are designed to immediately identify the emergence of increased
liquidity risk to maximise the time available to execute appropriate
mitigating actions.
Contingency Funding Plan: maintenance of a Contingency Funding
Plan (CFP) which is designed to provide a framework where a liquidity
stress could be effectively managed. The CFP provides a
communication plan and includes management actions to respond to
liquidity stresses of varying severity.
Recovery Resolution Plan: in accordance with the requirements of the
PRA Rulebook: Recovery & Resolution, Barclays has developed a Group
Recovery Plan. The key objectives are to provide the Group with a range
of options to ensure the viability of the firm in a stress, set consistent
Early Warning Indicators and to enable the Group to be adequately
prepared to respond to stressed conditions. The Group continues to
work closely with the PRA on developing the resolution plan.
■ LRA and Planning
■ Liquidity limits
■ Early Warning
Indicators Committee
■ Monitoring and review
■ Low cost actions and
balance sheet optimism
■ Activate Contingency
Funding Plan
■ Balance sheet reduction
and business limitations
■ Asset and liability
actions to generate
additional liquidity
■ Ensure an orderly
resolution can be carried
out if necessary, without
adverse systemic risk or
exposing the public fund
to loss
Ongoing business
management
Early signs/
Mild stress
Severe Stress Recovery Resolution
Liquidity risk
The risk that the 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 wide range of
Group-specific and market-wide events.