NZ Banking non-compliance issues dating back to 2008! So what was going on pre
2008 with risky algorithms?
Reserve Bank slams Westpac over ‘serious non-compliance” with risk rules
Hamish Rutherford
15 November 2017
https://www.stuff.co.nz/business/98917293/Reserve-Bank-slams-Westpac-over-serious-non-compliance
Westpac has been ordered to hold more cash on its balance sheet after the Reserve Bank of New Zealand said the bank “had materially failed” to meet its obligations around the models it uses to calculate risk.
The Reserve Bank has announced it will require Westpac New Zealand to hold an additional 2 percentage points of each form of regulatory capital banks are required to hold until the problems are fixed.
Under its operating agreement with the Reserve Bank, Westpac is required to operate approved risk models to calculate how much regulatory capital it needs to hold.
On Wednesday the Reserve Bank revealed the outcome of an independent report into Westpac’s operations in New Zealand, which found that 17 out of 35 capital models were unapproved.
At one time 21 of the 32 capital models it used were unapproved.
Operating unapproved models could make it impossible for regulators to determine how risk the bank’s loan book is, or how much capital it should hold to protect customers.
Westpac had noted the breach in its regulatory disclosure at the end of 2016.
The problems date back to 2008.
In a statement the Reserve Bank said Westpac had ‘materially failed to meet requirements around model governance, processes and documentation”.
“This is very disappointing. Operating as an internal models bank is a privilege that requires high standards and comes with considerable responsibilities. “Westpac had not met our expectations in this regard,” Reserve Bank deputy Geoff Bascand said .
The penalty imposed on Westpac may have little practical impact. In a statement Westpac said its current regulatory capital ratios “are sufficient to accommodate these increases.”
In a statement Westpac said “it was disappointed” not to have met the Reserve Bank’s requirements.
“[Westpac] acknowledges the highs standards required of an [Internal ratings-based] accredited bank and has already taken several steps to address the issues raised in the review.”
The Reserve Bank said Westpac had not deliberately sought to reduce its regulatory capital.
“While there have been serious shortcomings and non-compliance, it appears that Westpac has remained well above its required regulatory capital levels.”