Westpac Group Pillar 3 Report March 2013 - Iguana IR Sites

PILLAR 3 REPORT
LIQUIDITY RISK
Liquidity risk is the risk that the bank will be unable to fund increases in assets and meet obligations as they come
due, without incurring unacceptable losses.
Approach
Group-wide liquidity management is the responsibility of the Treasurer under the oversight of the BRMC and
ALCO. Liquidity modelling is performed for the Westpac Group.
Key aspects of the liquidity management strategy are:
Liquidity risk management framework
The BRMC approves Westpac’s policies for liquidity risk management annually or bi-annually as appropriate,
including:
modelling approach;
scenarios covered;
limit determination; and
levels of liquid asset holdings.
Funding strategy
Group Treasury undertakes an annual review of the funding profile consistent with expected market conditions and
the balance sheet growth of customer deposits and loans. The funding strategy is approved by BRMC annually.
To further strengthen the management of the Group’s funding, the Stable Funding Ratio (SFR) is used to focus on
the composition and stability of the overall funding base. Stable funding consists of customer deposits, equity and
wholesale term funding with residual maturity greater than twelve months (including securitisation). As at 31 March
2013, the stable funding ratio was unchanged from 30 September 2012 at 83%. Refer to section 2.4.2 Funding
and Liquidity Risk Management in Westpac Group Interim Results 2013 for further detail.
Contingency planning
Group Treasury maintains a Crisis Management Action Plan that details the broad actions that should be taken by
Westpac in the event of an emerging ‘funding crisis’. The plan is reviewed and approved by the BRMC and is
aligned with the Group’s broader situation management procedures.
Minimum liquid asset holdings
Westpac holds a portfolio of liquid assets that are eligible to be used as collateral for repurchase agreements with
the Reserve Bank of Australia. The BRMC annually approves minimum holdings of liquid assets.
Westpac complies with local regulatory liquidity requirements in its offshore operations. Westpac has been granted
a global liquidity concession by the Financial Services Authority in the United Kingdom, under which many aspects
of liquidity regulation of its UK operations are performed by APRA.
Liquidity reporting
Daily monitoring of the liquidity risk position is conducted by the Liquidity Risk unit in Group Risk, which monitors
compliance with crisis funding, normal funding and liquid asset holding limits. The daily liquidity risk reports are
circulated to, and reviewed by, local and senior staff in both Treasury and the independent Liquidity Risk unit.
Summary liquidity reports are submitted to ALCO and APRA monthly, and to BRMC quarterly.
Recovery and Resolution Planning
In November 2011, the Financial Stability Board, a global financial authority, finalised a comprehensive package of
policy measures to improve the capacity of authorities to resolve failing Systemically Important Financial
Institutions (SIFIs), without systemic disruption and without exposing taxpayers to risk of loss. As part of the
package, a Recovery and Resolution Plan is required for any firm deemed by its home authority to have systemic
importance to the domestic economy. In addition, domestic and global SIFIs will be subject to resolvability
assessments to ensure they may be resolved without severe systemic disruption and taxpayer loss while at the
same time protecting systemically important functions. APRA has undertaken a pilot Recovery Planning project
applying to Australia’s largest banks, with final plans delivered to APRA in mid-2012. APRA has indicated that it
intends to extend its recovery planning program once the results of the pilot program have been analysed. The
final form of any resulting requirements, the implications and the timing for Westpac are at this stage unknown.
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