RBS 2012 Annual Report Download - page 145

RBS GROUP 2012
143
Funding risk
As noted earlier, the Group actively participates in the broader
international debate and process regarding further reform and refinement
of liquidity risk oversight and policies, and will seek to adopt commonly
agreed upon measures where there is consistent alignment between
domestic and international regulators.
Funding sources
The Group has access to a variety of wholesale funding sources across
the globe, including short-term money markets and term debt investors
through its secured and unsecured funding programmes. These sources
of funding are complementary to the Group’s customer deposit gathering
activities.
Diversity in funding is provided by its active role in the money markets,
along with access to global capital flows through the Group’s international
client base. These funding programmes allow the Group (or its
subsidiaries) to issue secured or unsecured, senior or subordinated
securities. Over time the Group’s wholesale funding franchise has been
diversified by currency, geography, maturity and type.
The Group accesses the market directly or through one of its main
operating subsidiaries through established funding programmes. The use
of different entities to access the market from time to time allows the
Group to further diversify its funding profile, take advantage of different
benefits offered by using these entities, and in certain limited
circumstances demonstrate to regulators that specific operating
subsidiaries enjoy market access in their own right. This flexibility will
become increasingly important in the future as the Group moves towards
complying with the Independent Commission on Banking
recommendations.
Central bank funding*
The Group may access various funding facilities offered by central banks
from time to time. The use of such facilities can be both part of a wider
strategic objective to support initiatives to help stimulate economic growth
or as part of the Group’s broader liquidity management and funding
strategy. Overall usage and repayment of available central bank facilities
will fit within the Group’s overall liquidity risk appetite and concentration
limits contained therein so as not to create outsized maturity exposures.
During 2012, the Group drew down €10 billion of funding under the
European Central Bank’s Long Term Refinancing Operation and £750
million of treasury bills under the Bank of England’s Funding for Lending
Scheme.
Balance sheet composition
The Group’s balance sheet composition is a function of the broad array of
product offerings and diverse markets served by its Core divisions. The
structural composition of the balance sheet is augmented as needed
through active management of both asset and liability portfolios. The
objective of these activities is to optimise the liquidity profile in normal
business environments, while ensuring adequate coverage of all cash
requirements under extreme stress conditions.
Diversification of the Group’s funding base is central to its balance sheet
management strategy. The Group’s businesses have developed large
customer franchises based on strong relationship management and high
quality service. These customer franchises are strongest in the UK, the
US and Ireland, but extend into Europe and Asia. Customer deposits
provide large pools of stable funding to support the majority of the
Group’s lending.
The Group also accesses wholesale markets by way of public and private
debt issuances on an unsecured and secured basis. These debt issuance
programmes are spread across multiple currencies and maturities, to
appeal to a broad range of investor types and preferences around the
world. This market-based funding supplements the Group’s structural
liquidity needs and, in some cases, achieves certain capital objectives.
*unaudited