Under Pillar III of Basel II, all banks are required to disclose their risk management policies and framework in an annual document. In the first region to formally implement the Basel Accord, Australian banks are the first to issue such documents in accordance with the Australian Prudential Regulation Authority (APRA) requirements of Prudential Standard APS 330.
Macquarie received APRA approval for use of the advanced measurement approach (AMA) for assessing operational risk capital in December 2007. Its operational risk capital is calculated using a scenario-based approach together with statistical modelling of potential losses. Scenario estimates are then modelled to determine the operational risk component of regulatory capital Macquarie is required to hold. The bank uses Monte Carlo techniques to aggregate individual scenario distributions to determine a group-wide operational risk loss distribution.
The Australian bank allocates capital to individual businesses using quarterly scorecards. "This enables each business to understand its operational risk profile and the impact changes in its businesses make to that profile," the document reads. "The capital allocation effectively rewards positive risk behaviour and penalises increased risk. The scorecards measure changes in a number of key factors covering the size and complexity of the business, risk and control assessments, incident and exception management, and governance."
Macquarie does not use insurance in its AMA model for the purpose of operational risk capital reduction. Its operational risk regulatory requirement as at September 30, 2008 was $6,720 million.
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