Westpac New Zealand Limited, one of New Zealand's major banks, has had its minimum regulatory capital requirements increased after it failed to comply with regulatory obligations relating to its status as an internal models bank, the Reserve Bank said Wednesday.
The Reserve Bank of New Zealand said in a statement on Wednesday that Westpac used a number of models that had not been approved by the Reserve Bank, and materially failed to meet requirements around model governance, processes and documentation.
Internal models banks are accredited by the Reserve Bank to use approved risk models to calculate how much regulatory capital they need to hold.
"This is very disappointing. Operating as an internal models bank is a privilege that requires high standards and comes with considerable responsibilities. Westpac has not met our expectations in this regard," Reserve Bank Deputy Governor and Head of Financial Stability Geoff Bascand said in the statement.
The Reserve Bank has decided that Westpac's conditions of registration should be amended to increase its minimum capital levels until the shortcomings and non-compliance identified have been remedied, Bascand said.
In addition, the Reserve Bank has accepted an undertaking by Westpac to maintain its total capital ratio above 15.1 percent until all existing issues have been resolved.
The Reserve Bank has given Westpac 18 months to satisfy the Reserve Bank that it has sufficiently addressed those issues or it risks losing accreditation to operate as an internal models bank.
"We believe the regulatory action is appropriate given the seriousness of Westpac's non-compliance and the need to protect the integrity of the capital regime," Bascand said.
The Reserve Bank of New Zealand said in a statement on Wednesday that Westpac used a number of models that had not been approved by the Reserve Bank, and materially failed to meet requirements around model governance, processes and documentation.
Internal models banks are accredited by the Reserve Bank to use approved risk models to calculate how much regulatory capital they need to hold.
"This is very disappointing. Operating as an internal models bank is a privilege that requires high standards and comes with considerable responsibilities. Westpac has not met our expectations in this regard," Reserve Bank Deputy Governor and Head of Financial Stability Geoff Bascand said in the statement.
The Reserve Bank has decided that Westpac's conditions of registration should be amended to increase its minimum capital levels until the shortcomings and non-compliance identified have been remedied, Bascand said.
In addition, the Reserve Bank has accepted an undertaking by Westpac to maintain its total capital ratio above 15.1 percent until all existing issues have been resolved.
The Reserve Bank has given Westpac 18 months to satisfy the Reserve Bank that it has sufficiently addressed those issues or it risks losing accreditation to operate as an internal models bank.
"We believe the regulatory action is appropriate given the seriousness of Westpac's non-compliance and the need to protect the integrity of the capital regime," Bascand said.
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