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Westpac NZ hit with a public shaming over its culture around how it approached liquidity risk compliance that resulted in 'material failures'

Westpac NZ hit with a public shaming over its culture around how it approached liquidity risk compliance that resulted in 'material failures'

Westpac NZ has been hit with a public shaming after the Reserve Bank (RBNZ) found "ongoing compliance issues" involving "material failures" in the way it reported key liquidity details to the regulator.

The RBNZ cites culture issues. The penalty imposed involves the bank holding extra liquid assets.

Westpac was found to be in breach of the requirements of the RBNZ’s Liquidity Policy (BS13), which includes compliance with minimum mismatch ratios. The mismatch ratio is a measure of a bank’s liquid assets, adjusted for expected cash inflows and outflows to mitigate risk during a period of stress.

Westpac was non-compliant with its liquidity requirements because it was not calculating its mismatch ratios correctly. This had a material impact on the bank’s mismatch ratios, with the non-compliance occurring from 2012 to 2020. The calculations have since been corrected and Westpac has progressed a programme of remediation to address the root causes of the non-compliance.

Until the RBNZ is satisfied that Westpac’s remediation work is effective, Westpac’s required holding of liquid assets will be increased via an overlay on its mismatch ratios.

“Westpac NZ needs to take a close look at its risk governance practices. To ensure this happens we are requiring them to provide an independent report that assesses Westpac NZ’s risk governance processes and practices applied by the Westpac NZ Board and executive management,” RBNZ Deputy Governor and General Manager of Financial Stability Geoff Bascand says.

The Reserve Bank has also required that Westpac NZ provides a separate independent report to provide assurance that the actions they have taken to improve the management of their liquidity risks, and the culture surrounding it, are effective. Until the Reserve Bank is satisfied that Westpac NZ’s remediation work is complete and effective, it is increasing the bank’s required holding of liquid assets (cash or assets that can be easily converted into cash)," says Bascand.

For its part Westpac says the liquidity policy issues were previously reported to the RBNZ and the Australian Prudential Regulation Authority (APRA) and also first disclosed in the bank’s September 2020 Disclosure Statement.

"On 1 December 2020 APRA announced actions it was taking against Westpac NZ’s parent, Westpac Banking Corporation, as a result of these issues," Westpac NZ says.

"Westpac New Zealand acknowledges the importance of liquidity and risk governance obligations and will support the independent reviewers to provide the necessary reports to the Reserve Bank. Westpac NZ will also act promptly on any recommendations from the reviews. Westpac NZ has taken a number of steps to improve risk governance but recognises more work is required, and supports the additional oversight that the independent reports will provide."

The RBNZ says it's confident Westpac NZ’s current liquidity and funding positions are sound, and that the bank is well capitalised. It says the reviews requested are to ensure this remains the case on an ongoing basis.

Here is the statement from the RBNZ:


The Reserve Bank of New Zealand - Te Pūtea Matua has raised concerns around Westpac New Zealand’s risk governance processes and has instructed the bank to commission two independent reports to address them.

“We have experienced ongoing compliance issues with Westpac NZ over recent years, most recently involving material failures to report liquidity correctly, in line with the Reserve Bank’s liquidity requirements. Furthermore, the bank has continued to operate outside of its own risk settings for technology for a number of years,” Deputy Governor and General Manager of Financial Stability Geoff Bascand says.

“Westpac NZ needs to take a close look at its risk governance practices. To ensure this happens we are requiring them to provide an independent report that assesses Westpac NZ’s risk governance processes and practices applied by the Westpac NZ Board and executive management.”

The Reserve Bank has also required that Westpac NZ provides a separate independent report to provide assurance that the actions they have taken to improve the management of their liquidity risks, and the culture surrounding it, are effective. Until the Reserve Bank is satisfied that Westpac NZ’s remediation work is complete and effective, it is increasing the bank’s required holding of liquid assets (cash or assets that can be easily converted into cash).

The independent reviews come under Section 95 of the Reserve Bank of New Zealand Act 1989. This gives the Reserve Bank the power to require a bank to provide a report by a Reserve Bank-approved, independent person. The Reserve Bank will work with Westpac NZ to implement the findings.

It is important to note that the Reserve Bank is confident that Westpac NZ’s current liquidity and funding positions are sound, and that the bank is well capitalised. The reviews outlined today are to ensure this remains the situation on an ongoing basis.

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18 Comments

We wouldn't want to bail in depositors now would we

11
up

Who should take action on RBNZ for its failure........

This is just theater designed to show the public that the RBNZ 'means business' about financial stability. Meaningless.

Westpac needs to get its act together - and promptly.

I don't believe RBNZ would have taken such decisive action unless it had damned good reason to do so. Adrian Orr is no fool.

TTP

Surely it means that when the RBNZ is aware of irregularities it either ignores them or takes insufficient actions and follow ups to ensure its rules are complied with.

Having been in a bank that has had such issues appear, usually it's just because some guy on a spreadsheet got some formula wrong. They correct the formula and pay the price.

Yes, most of the compliance type stuff in banking is run via Excel (at least on the reporting side). I suspect Microsoft could blow up the entire world financial system by releasing a bad update.

Do the banks not have their own excel templates? I have a myriad of spreadsheet templates for various calculations, either with locked cells or cell formulas coded in VBA so that if someone were to accidentally change a cell it'll revert back.

Just shifts the location of the human error.

NZdan
Agreed . . . and it is not going to be “some guy” responsible either.

I recently read an interesting article reviewing email dumps post the Enron crash. Nearly a third of Excel spreadsheets has clear errors in them. Probably typical of most organisations.

At 0.80% (12 months) that Westpac are currently offering on TDs, I can't see a rush of depositors.

0.80% Vs a cheeky 324.86% return in defi.... hmmmm

0.80% for 12 months is a total joke, and it would be so from any NZ bank. Not even funny.

Between Westpac and the ANZ there has been a fair amount of regulatory SNAFU's lately - routine errors in some of the most important solvency & liquidity ratio's. Is there a shortage of decent management/staff in NZ???

Banks TD guarantee (like OZ?)-NO, Special inquiry into Banks behaviour? NO, CAR? NO (ngg what's that PR wording about 50% stress test?, ouh Westpac is not in? YR) - Orr & team must steadfast, negative OCR (but yea sad, almost every corners cook the stat to avoid it) - Yes, NZ is dumb country for regulation, always followed OZ.. but usually avoid to follow the hard steps.. no wonder easily exploited by OZ banks & recently the Asians banks.
After all? those with IQ will always able to exploit the lower compromise quotients.

OBR anyone? The govt can risk our money. I'm not. Just withdrawn funds from Westpac leaving a zero balance. My concern with advertising a breach like this is a potential bank run but I suppose with govt doing nearly all their business through Westpac that isn't going to happen.

Am I interpreting this correctly, or is the RBNZ taking material action only 8 years after the first signs of non-compliance ? If this is the case, it is not just Westpac's management that should be punished, but Orr himself too. If this is the case, we can't afford the risk of having such a clown at the helm of the RBNZ.

In the end, Westpac NZ will be handed over to CCP.. so it can be the larger vessel to quickly spread the land acquisition process. Two things needed in order to have miracle weapon at work: 1) Housing in NZ to live 2) Migration of the party participants.