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APRA (the Australian Prudential Regulatory Authority) seems to have got a little bit upset about this.

See if you can guess why.

The Australian Prudential Regulation Authority (APRA) has succeeded in obtaining court orders preventing an unauthorised financial business, the ‘Federal State Bank of Australia’, from calling itself and acting like a ‘bank’. Read the rest of this entry »

Just a quick note on an absurdity built into the way that the capital for operational risk is calculated under the standardised methodology. If you look at the way the calculation works (for the Australian version, see page 6 of this document), for a given current size of bank, the faster it is growing the less operational risk capital it needs.

Clearly, this is a silly outcome. An organisation that is growing rapidly is more, not less, exposed to operational risk and therefore the more capital it needs.

Just another of the things that happen when you try to tie operational risk capital to bare revenue or assets, rather than a true picture of operational risk. Looks like more reasons for pillar 2 action by the regulators.

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You can almost feel the sense of … I don’t know – maybe triumphalism? satisfaction? feeling of a job well done? in the IASB (International Accounting Standards Board) these days. With over 100 countries now either requiring or allowing the use of the IFRS (International Financial Reporting Standards) that feeling is probably justified. The IFRSs are now the global de facto reporting standards.

That is not to say they are faultless – there are plenty of areas where they could be improved. In my specialist area of IAS 39 (Financial Instruments: Recognition and Measurement) I can think of a few – hedge accounting is a good example. IAS 17 (Leasing) is another area with some real absurdities. (Further examples may be added in comments if you want to let off a little steam).

To be honest, I think one of the reasons they have achieved the position they are in now is the Sarbanes-Oxley legislation in the US. Read the rest of this entry »

For those of us that maintain a strong interest in the theory of bank regulation (sad, I know) a speech by Ben Bernanke provides a very interesting read. (Thanks to Bank Law Professor for another great link).

In this speech, he runs through what amounts to a history of bank regulation in the USA to illustrate his various points, on what he terms “command and control” bank regulation, deposit insurance and the moral hazard inherent in it, minimum capital requirements and Basel II. A real tour de force.

I was disappointed, though, that he did not mention one major possibility for the regulation of major banking markets. Read the rest of this entry »

Interesting, if short, paper today from the BIS on the impact of credit risk transfer. In a way, this is just a warning shot across the bows of the credit risk transfer industry and a timely reminder not to treat the current, benign, conditions as if they were normal.

The paper highlights the important parts of the risk transfer – that a lot of the risk is moved from the bank’s balance sheet to other financiers, including hedge funds, that may have a higher appetite for risk. Overall, the greater dispersal of the risks improves systemic stability. The problem he highlights, though, is often missed.

Read the rest of this entry »

If you are or have been doing modelling for Basel II, most likely you will come across one or more portfolios with low number of default, probably due to the limited historical modelling dataset in a beign economy environment. Read the rest of this entry »

Just a quick note – the final version of the anti-money laundering / counter terrorism financing rules are now out. Last chance to spot any obvious errors / problems – they will be registered by 13 April. Go for it.

Just a quick update to let you know I am still around. The last week has been very busy, with a quick trip to Melbourne for an update on AASB 139 (on which more in a subsequent post), an article in production for Business Islamica magazine and the close of one (Advanced) Basel II project and the proper start of an other (Standardised) one.

I have also decided to (temporarily) discontinue the series on the Basel II projects in the Australian banks. With APRA currently going through the approval processes for most of these projects it was just getting too sensitive. Some of the pronouncements from APRA on these projects have been questionable at best, so I think it best to discontinue these for the moment.

Also increasing worrying is the situation in the US. The Fed is now saying the 30 June target date for the release of the rules is looking aggressive – meaning they may either be rushed or incomplete and therefore subject to later alteration. Madness.

As always, we remain open to suggestions for future posts, so please suggest away.

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