RBS 2008 Annual Report Download - page 79

78
Business review continued
RBS Group Annual Report and Accounts 2008
On pages 78 to 144 of the Business review certain information has
been audited and is labelled as such.
Risk, capital and liquidity management (unaudited)
2008 has been one of the most challenging years for banks. The
financial markets turmoil, which started in the second half of 2007
following concerns over the US sub-prime mortgage market, resulted in
a global reduction in liquidity and the availability of term-funding.
Confidence in financial institutions was eroded through 2008 as a result
of an increased perception of counterparty risk following notable
banking and insurance failures.
During the recent market turbulence, in common with other banks, the
Group saw the availability of long term funding from both the capital
markets and money markets decline significantly during the second half
of 2008. As a result, reliance on shorter term funding increased with a
consequent deterioration in the Group’s liquidity profile. In response to
the market stress, central banks increased liquidity through a number of
facilities and schemes available to support their respective banking
systems. In addition, governments around the world have provided
capital to financial institutions and moved to offer guarantees and
increase deposit insurance to reassure investors and depositors. As a
global bank, the Group has access to a number of those facilities and
schemes which, in common with many other banks, it has used to
support funding.
Whilst the international stabilisation efforts led by various governments
since September 2008 have helped, the knock-on economic impacts
are now evident in markets globally. 2009 will see further strains for
financial institutions. Whilst the liquidity crisis is likely to stabilise, the
level of impairments will increase as recession spreads worldwide.
The Board, in the light of the severe and increasing deterioration in
market conditions, the worsening economic outlook and difficulties in
the credit markets, concluded that it was appropriate for the Group to
strengthen its capital position.
The Group has responded to the changing business and economic
conditions by reducing leverage, building and improving liquidity, raising
additional capital and through augmenting its risk management
resources to drive forward a number of strategic initiatives. The overall
risk operating model has been strengthened to ensure its adequacy for
changing market conditions and additional capital management
disciplines are being embedded across the Group. There is an
increased emphasis on the independence of the control functions,
capital allocation, stress testing and risk return throughout the Group.
Risk governance (unaudited)
Risk and capital management strategy is owned and set by the Group’s Board of Directors, and implemented by executive management led by the
Group Chief Executive. There are a number of committees and executives that support the execution of the business plan and strategy.
Group Executive
Management Committee
Executive Risk Forum
Group Audit Committee
Group Board of Directors
Advances Committee
Group Credit Committee
Group Asset and Liability
Management Committee Group Risk Committee