Westpac Group Pillar 3 Report March 2013 - Iguana IR Sites

PILLAR 3 REPORT
GLOSSARY
Regulatory expected loss (EL)
Resecuritisation
Risk weighted assets (RWA)
Securitisation Purchased
Securitisation Retained
Sponsor
Standard model
Stress testing
Stressed VaR
Substitution Approach
Supervisory formula (SF)
Tier 1 capital
Tier 2 capital
For regulatory purposes EL is defined as:
for non-defaulted exposures, the product of PD, LGD and EAD; and
for defaulted exposures, the best estimate of expected loss for that
exposure. It is equivalent to provisions for impaired assets and represents
charges already realised through Westpac’s earnings.
Regulatory EL is not calculated for Standardised portfolios and is based on
mandated risk-weights for Specialised Lending portfolios. Regulatory EL
should not be interpreted as an estimate of long-run expected loss because
the LGDs used in all regulatory calculations are calibrated to reflect stressed
economic conditions rather than long run averages.
A resecuritisation exposure is a securitisation exposure in which the risk
associated with an underlying pool of exposures is tranched and at least one
of the underlying exposures is a securitisation exposure. In addition, an
exposure to one or more resecuritisation exposures is a resecuritisation
exposure;
Assets (both on and off-balance sheet) of the Bank are assigned within a
certain category and amounts included in these categories are multiplied by
a risk weighting. The resulting weighted values are added together to arrive
at total risk weighted assets.
The purchase of third party securitisation exposure, for example residential
mortgage backed securities.
Securitisation exposures arising through Westpac originated assets or
generated by Westpac third party securitisation activity.
An ADI would generally be considered a sponsor if it, in fact or substance,
manages or advises the securitisation program, places securities into the
market, or provide liquidity and/or credit enhancements.
The standard model for Market risk applies supervisory risk weights to
trading positions.
Testing of the impact of market movements on the value of a portfolio.
Stress VaR uses a bank's approved VaR model but applies it to a time
period of significant financial stress. Market risk capital is now estimated by
adding Stress VaR to actual VaR
Substitutions refers to the rules governing the circumstances when capital
can be reduced because an obligor’s exposure has been hedged by the
purchase of credit protection from a counterparty and the counterparty’s PD
is used in place of the obligors’ PD.
Basel II provides three approaches to determine the risk-weight for a
securitisation transaction, where the term securitisation includes any
complex credit derivative. The supervisory formula is used when the
Ratings-Based Approach is unable to be used.
Comprises the capital elements that fully satisfy all of APRA’s essential
criteria. The key components of the gross Tier 1 capital are shareholders’
funds and hybrid equity.
Includes other elements, which, to varying degrees, fall short of the quality of
Tier 1 capital but still contribute to the overall strength of an entity as a going
concern.
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