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Sometimes I like to think that what I say here has at least some impact. This letter from APRA to the Advanced ADIs in Australia was sent out a month after my last piece on reviewing pandemic planning procedures. As I said – I like to think so.
That bit of auto-backslapping aside, the letter does make several worthwhile points about how hard this is to model. A pandemic is, almost by definition, a rare event with some pretty hefty costs and many effects – not all of them are likely to be reasonably foreseeable.
A read of the piece Jennifer wrote a few weeks back which touches on these sorts of events would also be useful.
Thanks to Langes+ for the pointer to the APRA letter.
As I was writing this I received an email on controlling the risk of the current H1N1 outbreak. Looks like I will not be going to Mexico, the USA, Canada, Panama or Japan any time soon. At least the UK is not on the list. Yet.
It is good to see that Westpac seem to have their reaction to the operational risk event they suffered in New Zealand about right.
…the employee responsible for their accidental windfall was so distressed by their error she was undergoing counselling, TVNZ reported.
Westpac said it was concerned at the attention the employee, who TVNZ said had more than 30 years of banking experience, was receiving and appealed for privacy.
“The impact of this episode is being felt by all of our employees, who are good people just doing their jobs,” a spokesman told TVNZ.
“What should be remembered is the loss from this episode did not happen because of the error, but because of the behaviour of individuals who have taken advantage of the error.”
The real cause of this problem is that the system allowed it to
happen. Where a system allows an error like this then someone,
somewhere, is going to suffer from it. Employees who make this sort of
error should be counselled, perhaps given some additional training and
then supported, if needed, when they get back.
A few pertinant questions. How can an employee, even one with 30 years’ experience, solely authorise the disbursement of $10m? Why did the bank’s systems not have a good sense check in there? Why did the system not add a further check when a service station owner asked to withdraw and/or transfer multi-millions of dollars?
I would expect the internal investigation to be a long one, focussing not on the employee but multiple failures in the core banking system.
Today’s The Sheet notes the rumoured demise of the Australian 5 cent piece. This follows the withdrawal of the 1 and 2 cent pieces over a decade ago.
I must say I am ambivalent about this. The cost of handling this sort of trivial small change to any bank is high and very few, if any, vending machines now take it. I cannot use it to pay for parking at any meter either.
That said, I wonder when the point comes when you should start looking at rebasing the currency. Obviously, you should not wait as long as, say, Zimbabwe did, nor should it be something that is done at the drop of a hat. The fact that you can now buy only one tenth of what you could with this coin is not a good thing.
The other option, of course, is to work to maintain the value of the currency – something that governments have historically been very poor at.
I have been interested to see the changes in advertising by the Australian banks over the last few weeks – the changes seem to be directed (for the first time ever in my memory) towards reassuring customers and potential customers that the banks are strong and safe. All of the previous campaigns I have seen have emphasised value for money or high service levels, with the non-price associated advertising predominating.
Trying to understand this using pure logic – this makes no sense. The banks at the moment are the safest they have ever been as they now have a full government guarantee (for deposits under $1m), something they have never had before. In fact, with all ADIs being guaranteed in this way they are just as safe as each other.
To me, this illustrates one thing clearly – the banks believe that the knowledge of the government guarantee has not penetrated to all of their deposit customers and, for those that do know it, the banks are trying to create the belief that they will be just as safe once it is withdrawn.
I can’t see this as being a long term trend, but it may be a pre-emptive strike. Once the guarantee is withdrawn (hopefully on schedule) then I think we can expect to see much more of this.
I can’t see the smaller institutions being happy about it.
The recently released announcement of losses within BankWest really makes very little sense to me. The entire loss is attributable (according to the release) to costs arising from the East Coast expansion strategy (which will presumably now be stopped) and, more importantly, loan impairments – up from $88m to $825m.
This is a huge jump – and one I simply cannot understand. As they were foreign owned and never had to produce a single Pillar III release under Basel II I cannot work off any real numbers, but looking to a peer comparison they must have been doing something seriously wrong under the old management for them to have had such a jump.
Not a single one of their competitors has reported anything like this increase in impairment provisions over the last year. Not one. The worst (incidentally, CBA) had them roughly triple in the September to December 2008 period – probably the worst of it. Considering the size of BWA’s retail book in WA (certainly better performing than the East Coast) to me at least this would mean that the losses over East must have been astronomical.
I just can’t see it. Feel free to correct me in comments, though.