Powered by MOMENTUM MEDIA
subscribe to our newsletter

Commonwealth FP inquiry could cost all majors

The CBA financial planning inquiry could see each major lender hold up to $2 billion in additional capital with increased operational risk charges.

While domestic litigation has been relatively muted, the Senate inquiry into CBA's financial planning practices highlights the potential for litigation and issues going forward – for all major banks.

Released yesterday, the Credit Suisse Operational Risk report found that the Australian banking sector has largely avoided these substantial litigation costs; however the current CBA financial planning inquiry highlights the possibility for operational risk charges to increase.

“Whilst the losses incurred by CBA are not likely to be significant, we seek to address the possibility that this may result in systemic charges and further attention paid to operational risks by the regulator, likely culminating in higher operational risk charges that are seen in overseas banking markets,” the report said.

Credit Suisse tested the sensitivity of the major banks to increased operational risk charges and found that major bank operational risk weights of 9 per cent are below the global average of 12.4 per cent, with an expectation that this could grow beyond 15 per cent over the next few years.

Advertisement
Advertisement

PROMOTED CONTENT


The report found that the operational risk weightings of Australian major banks have been steadily rising – from 7.5 per cent of total RWAs (risk weighted assets) in March 2012 to 9 per cent in March 2014.

A move towards operational risk weightings/total RWA of 15 per cent is estimated to result in the requirement to hold an additional $2 billion of capital for each of the major banks, equating to a 50 basis point charge on their respective CET1 ratios, the report found.

While credit risk has historically been the most substantial component of RWAs held by the majors – currently 84 per cent of total RWAs – operational RWAs as a percentage of total RWAs have been trending upwards, particularly in the aftermath of the financial crises with the emergence of significant litigation exposure, according to the report.

 

Commonwealth FP inquiry could cost all majors
mortgagebusiness

Latest News

The chairman of the financial services regulator has resigned from his position, effective immediately. ...

Refinancing settlements for the first nine months of the calendar year 2020 are up 27 per cent on last year’s volumes, having peaked in Ju...

The Tasmanian-based lender has seen a 43 per cent rise in settlements in the first quarter of the financial year, driven by strong demand fr...

FROM THE WEB

Join a group of highly informed brokers.

Broker Pulse, a community-driven knowledge base of lender performance Reveal exactly which lenders are making life easiest for brokers and their clients by taking this monthly survey and joining a group of highly informed brokers who leverage these insights every month.

JOIN NOW
podcast

LATEST PODCAST: Victoria’s surprising appetite for new homes

Do you expect to see strong uptake of the HomeBuilder scheme?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.