Australian banks issue Pillar III disclosures

SYDNEY - Westpac and Commonwealth Bank of Australia (CBA) have both published their disclosures required under Pillar III of Basel II on their respective websites.

Pillar III of the Basel Accord requires regular disclosure to the market of both qualitative and quantitative aspects of a firm's capital adequacy and risk disclosures.

CBA was the first to publish its report on November 13, followed the next day by Westpac. National Australia Bank and ANZ Banking Group are expected to make their Pillar III disclosures at the end of November.

Both firms have set out their approach to operational risk management. Direct inputs into CBA's op risk modeling system are scenario analysis capture of business judgements (called quantitative risk assessment) and internal loss data (captured by Sonar, the group's internal loss incident management system). Indirect inputs into the model are external loss data (sourced from external providers) case studies that are used in the scenario analysis process, and risk indicators are used in the scenario analysis process.

Westpac has adopted a hybrid approach for its op risk model that involves combining historical loss data (internal and external) with forward-looking risk and control assessment and scenario analysis data to derive a capital estimate. Capital is estimated by simulating distributions of operational risk losses for each data source. The final capital estimate is a weighted average of the capital calculated for each data source.

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