Barclays 2014 Annual Report Download - page 194

192 I Barclays PLC Annual Report 2014 barclays.com/annualreport
Risk performance
Funding risk – Liquidity
Risk review
Overview
The Group has a comprehensive Key Risk Control Framework for
Liquidity Risk (the Liquidity Framework) for managing the Group’s
liquidity risk. The Liquidity Framework meets the PRA’s standards and
is designed to ensure the Group maintains liquidity resources that are
sufficient in amount and quality, and a funding profile that is
appropriate to meet the liquidity risk appetite. The Liquidity Framework
is delivered via a combination of policy formation, review and
governance, analysis, stress testing, limit setting and monitoring.
Liquidity risk is managed separately at Barclays Africa Group Limited
(BAGL) due to local currency and funding requirements. Unless stated
otherwise, all disclosures in this section exclude BAGL and they are
reported on a stand-alone basis. Adjusting for local requirements,
BAGL liquidity risk is managed on a consistent basis to the Group.
This section provides an analysis of the Group’s: i) liquidity risk stress
testing, ii) internal and regulatory stress tests, iii) liquidity pool,
iv) funding structure and funding relationships, v) wholesale funding,
vi) term financing, vii) encumbrance, viii) repurchase agreements,
ix) credit ratings, x) liquidity management at BAGL and xi) contractual
maturity of financial assets and liabilities.
For further detail on liquidity risk governance and framework see
page 134.
Summary of performance in the period
During 2014, the Group strengthened its liquidity position, building a
larger surplus to its Liquidity Risk Appetite. This positions the Group
well for potential rating changes as credit rating agencies assess
sovereign support in Barclays Bank PLC’s credit ratings. This resulted in
an increase in the Group liquidity pool to £149bn (2013: £127bn). The
estimated CRD IV Liquidity Coverage Ratio (LCR) increased to 124%
(2013: 96%), equivalent to a surplus of £30bn (2013: shortfall of £6bn).
The Group funding profile remains stable and well diversified.
Wholesale funding outstanding (excluding repurchase agreements)
was £171bn (2013: £186bn). The Group was active in wholesale
unsecured, secured and debt capital markets, issuing £15bn (2013:
£1bn) net of early redemptions.
Liquidity risk stress testing
Under the Liquidity Framework, the Group 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. It is measured with reference to the
liquidity pool compared to anticipated stressed net contractual and
contingent outflows for each of three stress scenarios.
Liquidity Risk Appetite
As part of the LRA, the Group runs three primary liquidity stress
scenarios, aligned to the PRA’s prescribed stresses:
Q A 90-day market-wide stress event;
Q A 30-day Barclays-specific stress event; and
Q A combined 30-day market-wide and Barclays-specific stress event.
Under normal market conditions, the liquidity pool is managed to be at
a target of at least 100% of anticipated outflows under each of these
stress scenarios. The 30-day Barclays-specific stress scenario, results in
the greatest net outflows of each of the liquidity stress tests. The
combined 30-day scenario assumes outflows consistent with a
firm-specific stress for the first two weeks of the stress period, followed
by relatively lower outflows consistent with a market-wide stress for
the remainder of the stress period.
Liquidity risk is the risk that the Group, although solvent,
either does not have sufficient financial resources
available 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.
All disclosures in this section (pages 192 to 208) are unaudited and exclude BAGL
unless otherwise stated