1.
INTRODUCTION
Basel II aims at creating a global standard for banking regulators around the world to control
how much capital is needed to be left aside to guard against the types of financial and
operational risks. Pillar 3 develops a set of disclosure requirements to allow market discipline
to operate by requiring institutions to disclose details on the scope of application, capital, risk
exposures, risk assessment processes and the capital adequacy of the institution (APRA,
2007). In this report, the disclosures made by the Big Four Australian banks (CBA, NAB,
WBC and ANZ) and the Standard Chartered regarding the capital risk and securitization are
examined.
The first section of the report defines the capital risk and securitization; the second section
examined the relevant prudential requirements; the third part compares and contrasts the
Australian rules (APS 330) and the UK Rules (BIPRU) regarding capital and securitization.
The fourth part evaluates the relative performance of all the banks under a carefully designed
system, and the fifth part concludes the previous evaluation and makes pertinent
recommendation to the banks that how their performances could be improved.
This report has employed an analysis method to capture the true value of the quality of the
public disclosures of the Banks. The data are derived from the banks’ public disclosures /
financial report and also the analysis made by the analysts are supported by some scientific
journal.
As for any analysis, the resort to professional judgments based on the available information is
unavoidable for certain aspects of the analysis. The judgments might be constrained by the
availability of the information and also the lack of confidential information is also a
limitation of the report. In addition, the report only focuses on the disclosures of capital and
securitisation. Therefore, the depth of analysis has been restricted.
1
2.
Key Definitions
2.1 Capital Risk
For a financial institution, capital risk refers to the possibility where that financial institution
is participating or holding investments that increase the risk of default and it does not have
sufficient capital to sustain operating losses and honor withdrawals at the same time (Hirtle,
2003).
APRA required ADI to maintain appropriate capital structure. It can be showed by the capital
asset (leverage) ratio,
𝐿=
𝐶𝑜𝑟𝑒 𝑐𝑎𝑝𝑖𝑡𝑎𝑙
𝐴𝑠𝑠𝑒𝑡𝑠
The lower this ratio is, the higher the capital risk is (Lange, Saunders, Anderson, Thomson &
Cornett, 2007).
For capital adequacy, in order to maintain an appropriate capital risk level, ADI have to
maintain an appropriate level of capital for the type of activities they undertake (APRA,
2007). In measuring capital risk, bank’s weight-risk assets method is applied although this
method is so complex. In this way the capital can be risk-adjusted. The measurement of
capital risk is more reliable under this method.
2.2 Securitization
Securitization is the financial practice of pooling various types of contractual debt such as
residential mortgages, commercial mortgages, auto loans or credit card debt obligations and
selling said consolidated debt as bonds, pass-through securities, or Collateralized mortgage
obligation (CMOs), to various investors (APRA, 2007). The principal and interest on the debt,
underlying the security, is paid back to the various investors regularly. Securities backed by
mortgage receivables are called mortgage-backed securities (MBS), while those backed by
other types of receivables are asset-backed securities (ABS).
The major forms of asset securitization are the pass-through security, the collateralized
mortgage obligation (CMO, and the mortgage-backed bond (MBB). Also, although all three
2
forms of securitization originated in the lending market for residential housing, these
techniques are also being applied to loans other than mortgages. For example, credit card, car
loans, student loans, student loans and commercial and industrial (C&I) loans.
Securitizations can be classified into 2 main sections (APRA, 2007):
The first one is Traditional securitizations, where legal ownership of the underlying asset
pool is transferred into a Special Purpose Vehicle (SPV), which finances the purchase by
issuing debt instruments (notes) to investors, with principal and interest paid from realization
of or regular cash flows from the assets. The SPV assets are insulated from bankruptcy of the
seller or servicer.
The second one is synthetic securitizations, where credit risk is transferred to a third party but
legal ownership of the underlying assets remain with the originator e.g. by using credit
derivatives or guarantees.
3
3.
Relevant Prudential Standards
3.1 The prudential standards that apply to capital risk
APRA determines PCRs (Prudential Capital Ratios) for Tier 1 and Total Capital at both Level
1 and Level 2 under its prudential standards APS 110. Eligible capital is defined by APS 111
Capital Adequacy: Measurement of Capital, and the RWA calculations are predominantly
contained in APS 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk,
APS 115 Capital Adequacy: Advanced Measurement Approach to Operational Risk, APS
116 Capital Adequacy: Market Risk and APS 117 Capital Adequacy: Interest Rate Risk in the
Banking Book.
All Australian banks' regulatory capital calculation is governed by APRA’s prudential
standards which adopt a risk based capital assessment framework, based on the Basel II
capital measurement standards (APRA, 2007). This risk-based approach requires eligible
capital to be divided by total RWA, with the resultant ratio being used as a measure of an
ADI’s capital adequacy. APRA determines Prudential Capital Ratios (PCRs) for Tier 1 and
Total Capital, with capital as the numerator and RWAs as the denominator. The capital that
the banks are required to hold by the APRA is determined by the banks’ balance sheet, offbalance sheet, counterparty and other risk exposures (APRA, 2007). It is required to inform
APRA immediately of any potential breach or even breach of the minimum prudential capital
adequacy requirement, which includes details of remedial action taken or planned to be taken.
3.2 The prudential standards that apply to securitization
APS 120 is the key prudential standard that aims to ensure that authorized deposit-taking
institutions (ADI) adopt prudential practices in managing the risks. And these risks are
associated with securitization and that sufficient regulatory capital is held against the credit
risk.
The key requirements of APS 120 are that an authorized deposit-taking institution must
(APRA, 2007):
1) To calculate regulatory capital by applying a standardized or internal ratings-based
approach, depending on the approach it takes to general credit risk;
2) Do not provide implicit support to a securitization;
4
3) To stand clearly separate from a securitization, with the extent of the institution's
obligations to the securitization set out in legal documentation; and
4) To make sure that there is clear disclosure that its involvement in a securitization does not
extend beyond any specific undertakings to which it has formally committed itself.
APRA requires the management of capital and risks associated with securitization activities
and exposures to be set out in APRA prudential standard APS120 "Securitization" and
prudential practice guide APS 120 "Securitization". APRA has policies and procedures to be
compliant with the standard. The approaches employed are included with the ratings-based
approach (RBA), which is a regulator that provides risk-weights that are matched to external
credit ratings, and the internal assessment approach (IAA), which is almost the same as the
RBA.
The key requirement of APS120 is achieved through ensuring that the group (APRA, 2007):
1) Have to deal with the Special Purpose Vehicles (SPVs) and its investors in closest
basis and on market terms and conditions
2) Have to discloses the nature and limitations of its involvement in a securitizations
clearly
3) Have to aware the necessary precautions to make sure that the group does not give the
precaution that it will support a securitization that is in excess of its explicit
contractual obligations.
An SPV has to be separated from and ADI clearly involved in the securitization under APS
120. The limitations governing the extent of an ADI’s involvement have to be showed clearly
(APRA, 2007). Also, SPV must satisfy the following terms:
1) The SPV is a corporation, trust or other entity organized for a specific purpose
2) The aim of the SPV has to be defined clearly. The activities of the SPV must be
limited to those necessary to achieve that target
3) The SPV has to be financially and operationally independent of the originating ADI.
Securitizations can be consisted in many different ways. An ADI’s regulatory capital
treatment of a securitization exposure has to be calculated on the basis of the exposure’s
economic substance rather that its legal form.
5
3.3 Regulatory change
In June 2011, APRA published a discussion paper regarding the implementation of Basel III
capital reforms in Australia. The major propositions of the paper are increased capital
deductions from Common Equity Tier 1 capital and higher capital targets with prescribed
minimum capital buffers. It also holds that requirements regarding hybrid Tier 1 and Tier 2
securities should be further tightened. The expected effective date of these reforms should be
around January 2013 (McNulty, 2011). The Basel Committee has made it clear that final
proposals for contingent capital and measures to address systematic and inter-connected risks
would be available by the end of 2012.
6
4. Disclosures of capital and securitization in Australia and UK
Basel II Pillar 3 has a purpose to create an international standard for the development of
regulation about how much capital banks need to put aside to guard its financial and
operational risk. Basel II Pillar 3 recognises that market discipline has the potential to
reinforce capital regulation and other supervisory efforts to encourage safety and soundness
in banks and financial systems. Furthermore, market discipline enforces strong incentives on
banks to run their business in a safe, sound and efficient manner. Basel II Pillar 3 doing that
by requiring banks to disclose comprehensive information on their risk profile, capital
adequacy, and risk assessment processes which will allow the market participants or investors
to be able to evaluate its financial information (Vauhkonen, J., 2009). Market Participant or
investors can reward banks that manage their risks prudently and penalise those banks that do
not if they have a sufficient understanding of a bank’s activities and the controls it has in
place to manage its exposures. In addition, the goal of Basel II Pillar 3 is to help protect the
international financial system from the types of problems that might arise should a major or a
series of banks collapse.
Basel II Pillar 3 requires the banks to disclose their quantitative disclosures at least twice a
year (or semi-annual basis). However, in regards to the qualitative disclosures, Banks are
only required to disclose their qualitative disclosures once a year (or annual basis). The
qualitative disclosures provide a summary of the general risk management objectives whereas
the quantitative disclosures provide the risk exposure (in absolute terms and/or as a
percentage of economic value) of the banks’ portfolio.
Australian Prudential Regulation Authority (APRA) responsible for prudential regulation of
Banks, ADIs, insurance companies and superannuation entities in Australia. In order to create
a stable, efficient and competitive financial system, APRA established and enforced
prudential standards and practices. APS 330 is one of the prudential standards that apply to
all Australian Banks and any other authorised deposit-taking institutions (ADIs). All Banks
and ADIs in Australia are required to make a disclosure report regarding their risk
management practices and capital adequacy to enhance transparency in Australian financial
markets. On the other hand, Financial Services Authority (FSA) is the regulator of the
financial services industry in the United Kingdom (UK). It purports to maintain market
confidence in the financial system, contribute to the protection and enhancement of stability
7
of the UK financial system, and secure the appropriate protection for consumers. Hence, FSA
has the same purpose as APRA. GENPRU and BIPRU are 2 types of prudential standards
applied in UK, but in this assignment, our main focus is only on BIPRU 11 as it talks about
the minimum requirements for the public disclosure of the risk management practices and
capital adequacy for UK banks (BIPRU is relevant for ADIs, more specific for the banks).
Basically, most of the minimum requirements for the risk and securitisation exposures given
by APS 330 and BIPRU 11 are the same. However, there are some major differences that
make it does not apply to banks in UK. The table provided below will explain the differences
of risk and securitisation exposure for banks in Australia compare to banks in UK.
4.1 Capital Structure
Differences between APS 330 and BIPRU 11
APS 330
Applies to all locally incorporated ADIs. If ADIs is
subsidiary of non-operating holding company
(NOHC) requirement are met on level 2 basis where
an ADIs have no authorised NOHC or extended
licenced entity (ELE) must comply level 1 basis
BIPRU 11
Firm which is neither a parent
undertaking nor a subsidiary
undertaking, excluded from UK
consolidation group or non-EEA
subs-group , group which has
been granted investment firm
consolidation waiver
Qualitative
disclosures
Summary information on the terms and conditions
of the main features of all capital instruments.
The same as APS 330 plus BIPRU
requires ADIs to provide the
summary information of hybrid
capital, and also redeemable
capital instruments.
Quantitative
disclosures
APS 330 only requires ADIs to separate disclosure of
any positive items and deductions
Application
Does not require a Tier 1
deduction for certain capitalised
expenses and net deferred tax
assets
BIPRU has a more favourable
treatment for investments in
associates and insurance and
funds management subsidiaries
8
APS 330 does not mention about tier three capital
resources in calculating the total capital
In terms of RWA, APRA has set 20% floor on the
downturn LGD for mortgages
The total amount (capital) must
be stated gross of deductions of
tier two capital resources plus any
innovative tier one capital
resources AND tier three capital
resources
as compared with the 10%
minimum set by the FSA
FSA does not require IRRBB to be
a Pillar I requirement so it is
excluded from prudential capital
adequacy ratios.
Differences in the treatment of specialised property lending, equity and margin lending
products
4.2 Capital
Adequacy
Differences between APS 330 and BIPRU 11
Application
Qualitative
disclosures
Quantitative
disclosures
APS 330
Applies to all locally incorporated ADIs. If ADIs is
subsidiary of non-operating holding company
(NOHC) requirement are met on level 2 basis where
an ADIs have no authorised NOHC or extended
licenced entity (ELE) must comply level 1 basis
BIPRU 11
Firm which is neither a parent
undertaking nor a subsidiary
undertaking, excluded from UK
consolidation group or non-EEA
subs-group , group which has
been granted investment firm
consolidation waiver
Both APS 330 and BIPRU 11 have same qualitative disclosures
APS 330 does not mention about the 8% of the risk
weighted exposure amounts for each of the
standardised credit risk exposure classes
BIPRU 11 requires that firm when
calculating their risk weighted
exposure amounts in accordance
with the standardised approach
to credit risk, 8% of the risk
weighted exposure amounts for
each of the standardised credit
risk exposure classes
APS 330 only requires the firm capital requirements
(in terms of risk-weighted assets) for credit risk in
respect to standardised and IRB approach
BIPRU 11 requires the firm's
minimum capital requirements in
respect of its trading-book
business and all of its activities
9
APS 330 only mention requirements (in terms of
risk-weighted assets) for equity exposures in the
IRB approach (simple risk-weight method)
For Equity Exposure, the
requirements under BIPRU also
applies to exchange traded
exposures, private equity
exposures in sufficiently
diversified portfolio, exposures
subject to supervisory transition
regarding capital requirements,
and exposures subject to
grandfathering provisions
regarding capital requirements
4.3 For securitisation
Securitisation for
both trading and
banking book
Application
Qualitative
disclosures
Quantitative
disclosures
Differences between APS 330 and BIPRU 11
APS 330
BIPRU 11
Applies to all locally incorporated ADIs. If ADIs is
Firm which is neither a parent
subsidiary of non-operating holding company
undertaking nor a subsidiary
(NOHC) requirement are met on level 2 basis where undertaking, excluded from UK
an ADIs have no authorised NOHC or extended
consolidation group or non-EEA
licenced entity (ELE) must comply level 1 basis
subs-group , group which has
been granted investment firm
consolidation waiver
APS 330 obliges the bank to discuss the regulatory
capital approaches that are applicable to the ADI's
securitisation activities
BIPRU 11 does not mention the
regulatory capital approaches
stuffs.
APS 330 does not discuss anything about the
approaches to calculating risk weighted exposure
amounts that the firm follows for its securitisation
activities, including the types of securitisation
exposures to which each approach applies
BIPRU 11 requires the firms to
discuss the approaches to
calculating risk weighted
exposure amounts that the firm
follows for its securitisation
activities, including the types of
securitisation exposures to which
each approach applies
APS 330 does not require the ADI to discuss the
amount of securitisation positions that have been
risk weighted at 1250% or deducted
BIPRU 11 also requires the firms
to discuss the amount of
securitisation positions that have
been risk weighted at 1250% or
deducted
10
For securitisation subject to the early amortisation
treatment, the aggregate IRB capital charges
incurred by the ADI against its retained (seller)
shares of the drawn balances and undrawn lines
While in BIPRU, the aggregate IRB
capital charges incurred by the
ADIs (firms) against its originator's
interest
11
5. Evaluation of Disclosure Quality
5.1 Choices of disclosures and standards
In order to obtain comprehensive information in the disclosures of the banks, only full
disclosure reports are used in this report. Due to the discrepancies in the reporting dates, the
report as of Dec 11 2011 will be used for Standard Chartered; the report as of 30 June 2011
will be used for CBA; and the reports as of 30 September 2011 will be used for ANZ, WBC
and NAB.
As the reports of all the Australian banks were released before 2012, it would not be proper to
use the APS 330 of 2007. Hence the APS 330 of 2007 will be taken as the standards. As for
the BIPRU, it would be appropriate to use the 2010 version.
5.2 Capital
In order to enable meaningful comparisons among banks in terms of the disclosure quality
regarding capital risk, a systematic grading system has to be in place. Notably, there are some
minor inconsistencies between the Australian and UK standards. However, the Australian
rules are more stringent (as argued above) and hence the standards of marking are largely
derived from the requirements specified in APS 330. The banks have nonetheless developed
some other user-friendly disclosure practices, and it is of crucial importance to include those
practices in the standards of marking so as to improve the usefulness of the comparison. For
every criterion, the performance of each bank would be marked out of 10.
5.2.1 Capital Structure
Criteria
NAB
ANZ
Marks without adjustment
WBC CBA
Standard Chartered
Qualitative Disclosures of Capital Structure
Other Related Prudential
Standard
9
10
0
0
0
5
7
4
6
7
Features of all Capital
Instruments
Tier 1
Capital
12
Tier 2
Capital
Subtotal
Explanation of capital
movement
3
3
2
2
2
8
10
6
8
9
0
0
0
10
0
Quantitative Disclosures of Capital Structure
Separate Disclosures of
Tier 1 Capital
10
10
10
10
10
Separate Disclosures of
Tier 2 Capital
10
10
10
10
10
Total Capital Base
10
10
10
10
10
5.2.1.1 Qualitative Disclosure

According to (a) of Table 2, all the main features of the Tier 1 capital and Tier 2
capital shall be described in a concise but in-depth manner. As Tier 1 capital is much
more important than Tier 2 capital in terms of capital adequacy requirements, the
disclosure of Tier 1 and Tier 2 capital would be worth 7 marks and 3 marks,
respectively
 Discussion of Tier 1 capital should include the explanation of the terms and
conditions of fundamental capital, residual capital and Tier 1 deductions.
Standard Chartered has impressively provided both verbal and tabular
explanations regarding each component of Tier 1 capital, and hence full marks
shall be granted. The performances of the Australian banks vary. CBA’s
practices are highly similar to those of Standard Charter’s. However, most of
the information is provided in the appendix, which might compromise some
user-friendliness, and therefore 6 marks are granted to CBA. ANZ has
provided more useful information than CBA and Standard Chartered. For
example, ANZ has not only explained the adjustment items which APRA does
not allow as regulatory capital but also provided details regarding each
individual component in the Appendix. With regard to residual capital,
disclosures provided by ANZ have informed the investors about all the terms
and conditions of hybrid Tier 1 capital items. With respect to Tier 1 deduction,
ANZ is the only Australian bank that enumerates the relation between its
reported figures and relevant prudential requirements. ANZ’s disclosure
deserves full marks.
13
With respect to NAB, despite the fact that its disclosures regarding residual
capital are largely satisfactory (it achieves this by adopting a similar approach
to that of ANZ), the usefulness and completeness of the information supplied
by NAB is far from sufficient, which gives NAB 5 out of 7. Westpac only
offers a table in the appendix where all the features of Tier 1 capital
instruments are listed. The absence of necessary explanations makes Westpac
the worst performer, 4 out of 7.
 Discussion of Tier 2 capital should include the explanation of the terms and
conditions of Upper Tier 2 and Lower Tier 2 capital. ANZ and NAB have
supplied detailed information regarding both the Upper and Lower Tier 2
capital. Specifically, both banks have mentioned the history of the instruments,
the status quo and future prospects. The comprehensiveness of the information
makes them eligible for full marks in this aspect. Comparatively speaking, the
disclosure of CBA, Westpac and Standard Charter appear to be unduly general
as only the present features are illustrated in tables. Therefore, their
performances are rated as 2 out of 3 marks.

Users of the disclosures, especially the unsophisticated investors, would obtain clearer
understanding of the concepts regarding capital adequacy if the relevant prudential
standards were quoted (Bushman, Gigler & Indjejikian, 1996). ANZ and NAB have
done so, but ANZ’s disclosure in this respect is in a more comprehensive manner.
WBC, CBA and Standard Chartered did not consider quotation of relevant prudential
standards. Therefore ANZ achieves full marks in this case and NAB seconds to it (9
out of 10), while the rest of the banks obtain 0.

It would be beneficial if report users are provided with the information regarding the
capital movement throughout the financial year. Diaz and Harchaoui (1997) argues
that both stock and flow measures are of crucial importance in determining whether a
financial institution is duly capitalized or not. The knowledge of the capital
movements enables investors to gage the present and future performance of banks.
CBA is the only bank that attempted to explain significant initiative to manage its
14
capital. None of the other banks have treaded CBA’s path and hence they are not
entitled to any marks. It would be reasonable to reward CBA with full marks.
5.2.1.2 Quantitative disclosure

The quantitative disclosures of the five banks, (b), (c), (d) of Table 2, are in line with
the requirements specified by APS 330. Notably, with regard to (c), all the banks have
not only disclosed the total amount of Tier 2 capital but also each component of Tier 2
capital. In light of these facts, all the banks should be granted full marks for the
quantitative disclosures in regards to capital structure.
5.2.2 Capital Adequacy
Marks without adjustment
NAB ANZ WBC CBA Standard Chartered
Criteria
Qualitative Disclosures of Capital Adequacy
Discussion of the Approach
Key Objectives of the
approach
5
5
3
0
5
Description of
assessment processes
5
5
5
0
5
Explanation of the changes in RWA and
Capital Position
0
10
0
10
0
Subtotal
10
20
8
10
10
Quantitative Disclosures of Capital Adequacy
RWA for Credit Risk
10
10
10
10
10
RWA for Equity Exposures
10
10
10
10
10
RWA for Market Risk
7
7
7
7
7
RWA for Operational Risk
7
7
7
7
7
RWA for Interest Rate Risk
Total and Tier 1 Capital Ratio
10
10
10
10
10
Consolidated Group
5
5
5
5
5
Significant
Subsidiaries
5
5
5
5
0
Other Disclosures
0
10
0
0
10
0
10
0
0
10
International Comparison
Impacts of Basel III
15
5.2.2.1Qualitative Disclosure

The ADI’s approach to assessing the adequacy of its capital to support current and
future activities shall be specified. The objectives and processes of the approach are
two important aspects to assess the ADI’s approach to the maintenance of capital.
Hence each aspect should have 5 marks.
 Report users ought to be informed about the objectives of capital management.
Wu and Bowe (2010) that regulatory compliance is only one of the objectives,
and that there are usually other objectives that are crucial for the prosperity of
the bank and the maximization of shareholders’ value. ANZ, NAB and
Standard Chartered have identified several other salient objectives, especially
the maintenance of credit ratings. Westpac’s objective statement is less
specific and more general. Therefore ANZ, NAB and Standard Chartered gain
full marks; WBC gets 3 out of 5. Whereas CBA does not even bother to make
its investors aware of its other objectives of capital retention, depriving itself
of all the marks related to this aspect.
 Delineation of the internal capital adequacy processes could provide investors
with strong assurance that proper corporate governance practices are in place
to ensure that banks are well capitalized. All the banks, with the exception of
CBA, have elaborated the relevant processes, with a strong emphasis on stress
testing. NAB is exemplary in this aspect as in addition to the comprehensive
discussions of the ICAAP processes, it also illustrates the interaction between
the processes and other vital functions of the company (eg the Group
Treasury).

Explanations of changes in the RWA and capital position of the banks assist report
users in understanding the bank’s performance in terms of capital preservation. CBA
and ANZ are the only two banks that provide detailed explanations of this ilk.
16
5.2.2.2 Quantitative disclosure

All the banks have fully complied with (b), (c), and (f) of Table 3.

With respect to (g) of Table 3, the four Australian banks have disclosed total and Tier
1 capital ratio for the consolidated group and their subsidiaries. That Standard
Chartered did not include the computation of total and Tier 1 capital ratio for each
overseas bank subsidiary arises from the fact that the practice is simply not ignored
under the BIPRU. However, the practicality of the disclosures would decline in
absence of this information.

(d) & (f) of capital adequacy require the calculations of RWA to be broken down into
two components: RWA under the standard method and IMA (AMA for operational
risk). Despite the banks have provided the total RWA for market risk and operational
risk, no break-downs of the RWAs have been provided. All the banks get 7 out of 10.
5.2.2.3 Other disclosures

In the highly integrated financial markets, it provides great insight to the report user if
a bank compares its capital-adequacy position of the bank against financial
institutions elsewhere. Both CBA and ANZ have evaluated themselves under the UK
rules set by FSA. The other two Australian banks, along with the Standard Charter,
have yet appreciated the necessity of this comparison. Henceforth, CBA and ANZ
shall be granted full marks and all the rest banks should be punished for ignoring
doing so.

The impacts of the Basel III (which is expected to be adopted in 2012) upon the
capital-adequacy positions of the banks shall be estimated as precisely as possible.
Under Basel III, several reforms are expected to take place: capital deductions from
Common Equity Tier 1 capital would increase; capital targets with prescribed
minimum capital buffers would go up; and requirements around hybrid Tier 1 and
Tier 2 securities would tighten. Despite the fact that all the five banks are aware of the
strong impacts of Basel III, only ANZ have determined to carry out a detailed
quantitative assessment while Standard Chartered has conducted a less comprehensive
analysis (largely due to the uncertainties relating to how Basel III will be
17
implemented in UK). The forward-looking approach adopted ANZ offers great
privilege to the report users as they are in a better position to make future decisions.
The reluctance of other four banks to implement similar analysis might negatively
affect the practicality of the disclosures.
18
5.2.3 Assignment of weightage to each standard
The above marking standards make little pragmatic sense if the importance of each
standard is regarded as equal. Apparently, the more important standards in regards to
capital requirements are the quantitative standards specified in Table 2 and 3 in APS
330 as they straightaway leads to the capital adequacy ratios. Therefore more weight
shall be allocated to the prescribed quantitative requirements. Along with the
quantitative standards, several other factors must also be taken into account to
determine the exact weight of each element in the marking system. The following is
dedicated to the discussion of the weightage assigned to each standard and the rationale
behind the allocation method.
Weight Adjusted Marks
Criteria
Weight
NAB
ANZ
WBC
CBA
Standard
Chartered
Qualitative Disclosures of Capital Structure
Other Related Prudential
Standard
Features of all Capital
Instruments
Tier 1 Capital
Tier 2 Capital
Explanation of capital
movement
2%
0.18
0.2
0
0
0
4%
0.2
0.28
0.16
0.24
0.28
2%
0.06
0.06
0.04
0.04
0.04
2%
0
0
0
0.2
0
Quantitative Disclosures of Capital Structure
Separate Disclosures of
Tier 1 Capital
Separate Disclosures of
Tier 2 Capital
20%
2
2
2
2
2
10%
1
1
1
1
1
Qualitative Disclosures of Capital Adequacy
Discussion of the
Approach
Key Objectives of
2%
0.1
0.1
0.06
0
the approach
Description of
assessment
6%
0.3
0.3
0.3
0
processes
Explanation of the
changes in RWA and
2%
0
0
0
0.2
Capital Position
Quantitative Disclosures of Capital Adequacy
RWA for Credit Risk
15%
1.5
1.5
1.5
1.5
0.1
0.3
0
1.5
19
RWA for Equity Exposures
3.75%
0.375
0.375
0.375
0.375
0.38
RWA for Market Risk
3.75%
0.2625 0.2625 0.2625 0.2625
0.26
RWA for Operational Risk
RWA for Interest Rate
Risk
Total and Tier 1 Capital
Ratio
Consolidated
Group
Significant
Subsidiaries
3.75%
0.2625 0.2625 0.2625 0.2625
0.26
3.75%
0.375
0.375
0.375
0.375
0.38
5%
0.25
0.25
0.25
0.25
0.25
5%
0.25
0.25
0.25
0.25
0
Other Disclosures
International Comparison
5%
0
0.5
0
0.5
0
Impacts of Basel III
5%
0
0.5
0
0
0.5
7.115
8.215
6.835
7.455
7.245
Total Mark
First of all, interpretations of the main features of each component of capital
instrument are prerequisite for the quantitative data to be meaningful. Therefore it
would be reasonable to attach 2% to the citation of relevant prudential standards as it
would assist the report users in their understanding of the concept of capital in general.
6% should be allocated to (a) of Table 2 since the disclosure of the terms and
conditions of all capital instruments of a bank would raise the awareness of report
users about the bank’s capital position. Explanations of changes in the Tier 1 and Tier
2 capital can help the report users to appreciate the trend of the capital position of the
bank and hence a weightage of 2% shall be allocated.
Secondly, a concise discussion of the ADI’s internal adequacy assessment could
provide insightful information whether the current capital position of a bank is
sustainable or not. The discussion could usually be categorized into two parts: the
objectives of the assessment and the processes to achieve the objectives. A weightage
of 2% is assigned to the former and 6% goes to the latter. Explanations of changes in
capital-adequacy position are also relevant as it allows report users to be informed
about the rationale behind the ups and downs of the ratios. Thus a weightage of 2% is
assigned to this standard.
20
Thirdly, as international comparisons become increasingly relevant under the current
globalized context, it would be grounded to assign a weightage of 5% to the related
standard. The fact that Basel III would soon replace the current Basel II requirements
should propel banks to reconsider its capital position and hence another 5% of
weightage is granted to the standard concerning the qualitative and quantitative
assessment of the impact of the adoption of Basel III on the banks’ capital positions.
In addition, a reliable capital adequacy ratio would entail precise calculations of Tier
1 and 2 capital and the risk weighted assets. The numerator (capital) and the
denominator (RWA) should be of equal significance to report users. With regard to
the numerator, more focus shall be directed towards Tier 1 capital rather than Tier 2
capital (Elghanayan, 2010). Thus a weightage of 20% shall be assigned to the
quantitative standard regarding Tier 1 Capital and the rest 10% goes to the standard
concerning Tier 2 capital. With regard to the denominator, the fact that there are
several risks affecting RWA adds complication to the matter. According to Williams
(2004), the ability to manage credit risk is most essential to the survival of a bank.
Therefore it would be logical if a weightage of 15% goes to the standard relating to
RWA for credit risk. In regards to the other four standards concerning the RWA for
other risks, each of them is assigned a weightage of 3.75%.
Least but not last, the disclosure of total and Tier 1 capital ratio for the consolidated
group and each significant subsidiary is of particular use. The fact that the group as a
whole satisfies capital adequacy requirement is no guarantee that its subsidiaries are
in the same healthy state. Hence, a weightage of 5% shall be assigned to the standard
relating to the subsidiary and the rest will go to the standard in relation to the
consolidated group.
5.2.4 Interpretation of the results
Based on the marking standards and the weightage allocation criteria, the results
regarding the quality of the disclosure of capital-adequacy positions are as follows.
ANZ’s disclosure enjoys the highest quality whereas the disclosure provided by WBC
is of the lowest quality. CBA has the second highest disclosure quality, followed by the
Standard Chartered. NAB’s disclosure regarding its capital position is slightly better
than the worst performer, Westpac.
21
Given the fact that the prescribed quantitative disclosures made by most banks are
satisfactory, the ranking of the disclosure quality is largely ascribed to three
exceptional reporting practices:
 BIPRU does not require banks to compute and disclose the Tier 1 and Total
capital ratios for its significant subsidiaries;
 ANZ and CBA have supplied information to establish their capital-adequacy
position under the BIPRU regulations;
 ANZ and the Standard Chartered have conducted qualitative and quantitative
assessment of the impacts of the adoption of Basel III upon its capital position.
With regard to the first practice, it is not conducive to the improvement of disclosure
quality. Bryan (1991) argue that some disastrous banking crisis occur when the capital
adequacy positions of its subsidiaries are deteriorated. Therefore it is important to
closely monitor the performance of both the consolidated group and each significant
subsidiary under the same rules. Standard Chartered has shown some efforts in the
monitoring activities as it has disclosed the separate components of Tier 1 and Tier2
capital under the current UK rules. However, the work is not completed as the RWA
for various risks are not calculated, which makes the computation of the ratios
impossible. One interesting point is that APRA has explicitly required ADIs to
disclose the capital ratios of their subsidiaries. The more stringent Australian
standards have, in this case, led to higher disclosure quality.
The second practice has facilitated comparisons of the performances of banks in
different jurisdictions. At present, despite the wide acceptance of Basel II, the
regulatory requirements are not harmonized. The relative capital strength of banks
cannot be determined by directly comparing the capital adequacy ratios since different
jurisdictions might have different definitions and requirements for capital and RWA.
For example, it would be short of legitimacy if the capital adequacy ratios between
ANZ and the Standard Chartered are directly contrasted, in that a number of features
of APRA’s implementation of Basel II have the effect of making key capital adequacy
ratios appear lower than would be the case if they were calculated under UK rules.
Considering the inconsistencies between standards, ANZ and CBA have computed
22
capital ratios as if UK rules applied. The failure of other banks to follow the practice
undermines the comparability of their disclosures.
The third practice, adopted by the Standard Chartered, is exemplary. Only ANZ has
taken a similar approach and the rest Australian banks do not even touch the issue.
The practice contains both qualitative and quantitative elements. The Standard
Chartered has quantified the likely impacts of the adoption of Basel III on the Core
Tier 1 capital ratio. It does not extend the quantitative analysis further on the account
of some pending uncertainties in relation to the actual implementation of Basel III. In
contrast, ANZ’s analysis is much more detailed given the availability of the
discussion paper concerning the new practices under Basel III published by APRA.
The other Australian banks made the choice to ignore the future yet certain changes
and this myopia has led to heavy discount of its disclosure quality.
5.2.5
Recommendations
Under the marking system discussed above, there are some short-cuts to increase the
marks of each bank so as to improve the disclosure quality.
 As for the Standard Chartered, by disclosing the Tier 1 and total capital ratios
of its significant subsidiaries, it would be able to gain 0.25 marks. By
enumerating its position as if other international rules applied (for example,
the APS 330 by APRA), it would gain another 0.5 marks.
 With regard to WBC and NAB, they could have gained one extra mark if the
last two exceptional practices were adopted.
 Had the impacts of Basel III been evaluated, CBA would have obtained
another 0.5 marks.
Besides the short-cuts discussed above, there are some other details which, though
minor, would contribute to the making of more informative disclosures:
 WBC, CBA and Standard Chartered could mention the relevant prudential
standards regarding capital adequacy;
 More detailed explications could be made in regards to Tier 1 and 2 capital by
NAB, WBC and CBA;
 NAB, WBC, ANZ and the Standard Chartered shall explain the events that
caused changes to the Tier 1 and 2 Capital, the RWA and the capital ratios.
23
5.3. Securitisation exposures
As we are analysing the 2011 disclosure reports, the document regarding Basel II pillar 3 is
APS330 of 2007 since the current APS 330 was not effective at that time.
Criteria
NAB
Marks without adjustment
Standard
ANZ WBC CBA
Chartered
Qualitative Disclosures of Securitisation
General Qualitative Disclosure
Requirements
Objectives
Transfer of Credit
Risk
The roles
Regulatory Approach
Accounting Policies
Treatment of
transaction
Recognition of gain
on sale
Method and key
assumption
The ECAI's name
8
0
10
0
8
0
10
0
10
10
10
0
10
0
10
10
10
10
10
0
5
7.5
2.5
2.5
5
10
10
0
0
10
10
10
0
10
10
0
5
0
0
5
5
5
5
5
5
Quantitative Disclosures of Securitisation
Total Outstanding Exposures
10
10
10
10
5
Underlying Exposures
Originated by ADI
10
10
10
10
0
Exposure Type
8
8
10
8
0
Risk Weight Bands
8
8
10
8
5
Securitisations subject to the
early amortisation treatment
10
10
10
10
10
Summary of the current year's
securitisation activity
10
10
10
10
10
Aggregate Amount of
Securitisation Exposure
24
5.3.1 Qualitative disclosures

Based on (a) of Table 9, ADIs should discuss their objectives in relation to
securitization activities, which aids report users to conduct a meaningful analysis of
the bank’s business model with regard to securitization. Specifically, banks should
disclose the objectives of the activities undertaken during the current year. This
should enable a better understanding of the quantitative disclosures provided for the
current activities. Investors could then evaluate whether the objectives have been
achieved or not. For this disclosure, NAB and Standard Chartered have briefly
demonstrated their objectives while WBC lists the objectives and explains them in
great detail. Hence WBC would be granted 10 marks whereas NAB and Standard
Chartered only get 8 out of 10. CBA and ANZ have not expressed any objectives in
relation to securitization and hence they should get nil.

The extent to which securitization activities transfer credit risk of the underlying
securitised exposures away from the ADI to other entities should be explicitly made
clear. This disclosure aims at provision of meaningful and relevant data related to the
bank’s business strategies and plans for the securitisation activities. This disclosure
would permit investors to better appreciate the risk profile of the banks. ANZ, CBA
and Standard Chartered have explicitly addressed this issue while NAB and WBC
failed to do so. Therefore the former three banks are rewarded with full marks and the
latter two get zero.

ADI should disclose the nature of roles they have played in the securitization process.
NAB and WBC listed those roles and explained in detail. Although Standard
Chartered lists a few roles, the lack of further explanation makes its disclosure
insufficient. CBA and ANZ have largely ignored the descriptions of the major roles in
their securitization processes and hence they should obtain zero.

The regulatory approaches that are applicable to the ADI’s securitisation activities are
required to be disclosed. All Australian banks have made it clear that they have
adopted the IRB approach to determine the regulatory capital charge. In this sense,
they shall be assigned full marks. Notably, Standard Chartered has not made any
25
regarding this aspect. This is largely due to the absence of this requirement in the UK
standards, and thus Standard Chartered shall not get any marks.

(b) of Table 9 aims to provide a more detailed explanation for the accounting policies
used in respect of securitisation. The terms and conditions of products of
securitizations are always complicated in nature and there are a number of different
ways to treat them. Therefore by making the relevant accounting policies clear, bank
could increase the comparability of their disclosures in regards to securitization
products. Three standards are of particular importance in ensuring the quality of this
disclosure.
 Banks have to state the guidelines to classify transactions in securitizations
activities. When the balance sheet of the SPV has to be consolidated with that
of the banks, any transfer of the assets would be treated as financing. And the
other circumstances the transfer of the assets would be largely treated as sales.
Therefore, the consolidation guidelines are relevant in this case. ANZ has
adopted AASB 112 as the basis to determine when consolidation is required.
Standard Chartered has also used the control principle to guide the
consolidation activities. The rest of the banks did not inform the report uses of
this issue. Only NAB has provided substantial guidelines on what transactions
should be treated as sales and what transactions should be treated as financing.
The rest of the banks remain silent on this issue. Therefore, NAB, ANZ and
Standard Chartered should have full marks while the rest get zero.
 For the recognition of gain on sales, it is also related to the consolidation
principles and hence NAB, ANZ, CBA and Standard Chartered have provided
rough principles but not in a comprehensive manner. Westpac has largely
skipped this issue.
 The key assumptions for valuing securitizations, including significant changes
have to be disclosed. This serves as an important resource to investors as it
enables them to carry out fundamental analysis of the banks. ANZ and
Standard Chartered have mentioned about the principal assumptions but they
have not provided any information regarding the changes. It is probable that
26
no such changes have occurred. However, they should have made this clear
even if this were the case. This lack of responsibility in report will make them
lose half of the marks (5 out of 10). The fact that the rest of the banks totally
ignored this point deprives them of all the marks.

Based on (c) of Table 9, the name of the External Credit Assessment Institutions
(ECAIs) used for securitisations and the types of exposure for which each agency is
used ought to be disclosed. This provides report-users, especially stakeholders,
assurance about the credit-worthiness of the securitization products. All the banks
have made it clear that S&P, Moody and Fitch are employed to rate the securitization
products but no further details are supplied to enable the specific duties that have been
carried out by each rating agency. Hence, all of the banks are only entitled to half of
the marks.
5.3.2 Quantitative disclosure
Basically, all the major banks in Australia have complied with the requirements given
by APS 330. On the other hand, Standard Chartered did not mention some of the
requirements given by APS 330 because the rules they have followed are different
(BIPRU 11).
According to the APS 330, there are seven major requirements that ADIs must
disclose. Each bullet point below would constitute a standard, which is worth 10
marks. The full compliance with a standard would gain 10 marks for the bank.

All the banks should have disclosed the total outstanding exposures of
securitisations that are subject to the securitisation framework and they have to
break it down into two parts; traditional and synthetic securitisation. In
addition, they should also disclose it separately for securitisation of third-party
exposures for which the ADI acts only as originator. All the major banks in
Australia have disclosed their total outstanding exposures and they separate
this with the other securitisation where they only act as originator. Therefore,
all the major banks in Australian gain full marks. However, Standard
Chartered has broken down the total amount of exposure securitised into
27
traditional and synthetic securitisations, but they did not do the same thing for
the total amount outstanding. Therefore, Standard Chartered gets 5 out of 10.

For the exposures securitised by the ADI, the amount of impaired/past due
assets and losses recognised by the ADI during the current period must be
broken down by exposure type. Standard Chartered is the only bank that did
not mention anything about this part, which gives Standard Chartered 0
whereas the rest of the banks have satisfied this requirement and hence all of
them obtain full mark.

APS 330 requires the banks to provide the aggregate amount of securitisation
exposure. For example, liquidity facilities, derivatives transactions, holding of
securities, and etc. Westpac has provided more information than the other
banks, for example, they mentioned the total amount of the liquidity facilities
in regards of the originated assets, credit portfolio management, provision of
services, and total exposure at default. The comprehensive information given
by Westpac makes them entitled to full marks. Despite the fact that ANZ,
NAB, and CBA have also provided the aggregate amount of securitisation
exposure, their information is not as complete as Westpac. Therefore, these
three banks receive 8 out of 10 for each. In addition, Standard Chartered did
not even bother to provide the aggregate amount of securitisation exposure.

Banks are also obliged by APS 330 to provide the aggregate amount of
securitisation exposures and the associated IRB capital charges for these
exposures, and then further broken down into number of risk weight bands. If
the banks comply with this requirement, they will be given 5 marks.
Furthermore, banks must disclose the securitisation exposures deducted from
tier 1 capital and other exposures deducted from total capital, by mentioning
this part, each bank is entitled to 5 marks. Westpac has been successful to
provide more information regarding the IRB and the deduction than the other
banks have given; therefore Westpac is able to able to get full marks. For the
rest three major banks in Australia, even though they have already mentioned
this part, they still did not provide complete information like Westpac did.
28
Therefore, NAB, ANZ, and CBA only manage to get 8 out of 10. With regard
to the aggregate amount of securitisation exposures and the associated IRB
capital charges for these exposures, Standard Chartered has obeyed this APS
330 requirement. However, Standard Chartered missed out to disclose the
deduction from tier 1 capital. As a result of ignoring that requirement, 5 marks
will be taken out of them.

Regarding the securitisation subject to early amortisation, all of the major
banks in Australia have mentioned this part even though none of these
securitisations undertaken by them. They should be granted full marks by
doing so. On the other hand, this part has been ignored by Standard Chartered,
hence they receive nil.

Summary of current period’s securitisation activity must be provided by all of
the banks, because it would be easier for sophisticated and unsophisticated
investor to assess the quality of quantitative disclosure of a bank, if the banks
lump all the securitisation activities together (for example, the total amount
exposures securitised, and recognised gain or loss on sale by exposure type) in
one table. Since all the banks have provided the summary, 10 out of 10 should
be awarded to them.
29
5.3.3 Assignment of weightage to each standard
Criteria
Weight
NAB
Marks without adjustment
ANZ
WBA
CBA Standard Chartered
Qualitative Disclosures of Securitisation
General Qualitative
Objectives
Transfer of Credit
Risk
The roles
Regulatory
Approach
Accounting Policies
Treatment of
transaction
Recognition of gain
Method and key
assumption
The ECAI's name
5%
0.4
0
0.5
0
0.4
10%
0
1
0
1
1
4%
0.4
0
0.4
0
0.4
5%
0.5
0.5
0
0
0.5
10%
1
1
0
0
1
10%
1
1
0
1
1
8%
0
0.4
0
0
0.4
8%
0.4
0.4
0.4
0.4
0.4
Quantitative Disclosures of Securitisation
Total Outstanding Exposures
Underlying Exposures
Originated by ADI
Aggregate Amount of
Securitisation Exposure
Exposure Type
Risk Weight Bands
Securitisations subject to the
early amortisation treatment
Summary of the current year's
securitisation activity
Total Mark
7%
0.7
0.7
0.7
0.7
0.35
4%
0.4
0.4
0.4
0.4
0
7%
7%
0.56
0.56
0.56
0.56
0.7
0.7
0.56
0.56
0
0.35
5%
0.5
0.5
0.5
0.5
0.5
10%
1
1
1
1
1
7.42
8.02
5.3
6.12
7.3
The reason why weightage is assigned to each standard above is provided in the
discussion of the capital risk.
First of all, a concise discussion about the ADI’s objectives in relation to
securitisation activity could provide insightful information and help investors to
evaluate whether the ADIs have achieved the objectives or not. Therefore, it would be
reasonable to attach 5% if the ADIs provide their objectives. In addition, the extent to
which the securitisation activities transfer credit risk of the underlying exposures
away from the ADI to other entities would be another important thing that must be
disclosed by ADI and hence 10% should be allocated to this part. The roles played by
30
ADI and the regulatory capital approaches that are applicable to the ADI’s
securitisation activities could be allocated 4% and 5%, respectively.
Secondly, summary of the ADI’s accounting policies for securitisation activities are
also shall be discussed in a comprehensive manner. Both treatment of the transactions
and recognition of gain on sale are heavily related to the consolidation. Therefore, 10%
weightage shall be allocated for each of this part. Furthermore, method and key
assumption for the accounting standards must be disclosed because by disclosing the
method they have been using, investors can have a better understanding about the
quality of the disclosures. Thus a weightage of 8% is assigned to this standard.
Thirdly, ADIs must disclose their total amount of outstanding exposures securitised
and it must be broken down into traditional and synthetic securitisation. In addition,
ADIs should separate the securitisations of third party exposure if they act only as a
sponsor or originator. ADI’s shall do this in a comprehensive manner so that investor
would not get confused. ADI’s would be granted 7% in regard to this part.
Fourthly, ADIs also need to mention all the underlying exposures originated by them
with regard to the total amount of impaired/past due assets, and also the total amount
of losses recognised by ADI. The fact that ADIs might be experiencing none of these
does not mean that they should not disclose this. Therefore, it would be reasonable to
attach 7% regarding this part.
Fifthly, exposure types reveal important information regarding the risk profile of the
banks. For example, if a bank has unduly huge exposures to a certain type of product.
It might not carry an efficient portfolio and diversification benefits are not fully
exploited. Therefore, it is crucial for the investor to know the banks’ exposure types
so that they have a better understanding about the bank’s risk profile.
Sixthly, there are two strands for (g) of table 9, the first strand concerns about the
breaking down of securitisation exposures into meaningful number of risk weight
bands. This is consistent with the regulatory capital approach as different
securitisation exposures should have different risk attributes. The second strand also
fits into the regulatory system in a sense that the exposures that reduce tier 1 capital
31
should be of particular concern to report users given the predominant role that tier 1
capital plays in Basel II. Therefore, the weight of this standard is higher than the rest
of the standards.
In addition, the summary is effectively equivalent to profit and loss statement of the
securitisation activities undertaken by the bank. It informs report users about the
profitability of the securitisation and therefore this has the largest weight among the
other standards (10%). The rest of the weightage will go to the discussion for the
securitisation subject to early amortisation treatment, as practically none of the banks
undertake this kind of securities.
5.3.4. Interpretation of the result
Based on the marking standards and the weightage allocation criteria, the results
regarding the quality of the disclosure are as follows; from highest to lowest: ANZ
8.02, NAB 7.42, Standard Chartered 7.3, CBA 6.12 and WBC 5.3.
According to our marking method, ANZ has the highest quality disclosure. NAB and
Standard Chartered got similar marks and show that the have similar quality of
disclosure. By the way, the mark of CBA is much lower than the top three. The lowest
is WBC, which is also much lower than the top three even CBA.
One notable exceptional reporting with the Standard Chartered is that as BIPRU does
not require banks to disclose exposures that have been deducted from Tier 1 Capital,
it omits this information in its disclosures. This practice is not consistent with the
underlying rationale of the Basel II. Any event that would materially affect Tier 1
capital shall be disclosed. APRA, on the other hand, has appreciated the significance
of this requirement. As a result, all the Australian banks have superior disclosure
quality to the Standard Chartered in this aspect.
Another key area of exceptional reporting is that three out of five banks (namely NAB,
WBC and CBA) declined to provide principal assumptions regarding the key
assumptions in the valuation of positions in securitization disclosure. Despite the fact
that most of the details could be found in the accounting policies of the derivatives in
32
the financial statement, the reluctance to present key assumptions seriously undermine
the usefulness of the disclosures in the sense that the securitization activities of banks
would not be directly comparable with the absence of valuation technique.
That the extent to which securitization transfers credit risk away from the ADI to
other entities is illustrated in a blurred manner raises doubts about the fundamentals of
the securitization activities. Credit risk should be the predominant concern for report
users in assessing the risks associated with securitization. Different activities would
affect the transfer of credit risk in a different manner. All the banks examined
(including those which have obtained high marks) refused to analyse the credit risk in
relation to each major securitization exposures.
5.3.5. Recommendation
To improve the disclosure quality, there are some short-cuts that could be used.
 With regard to NAB and WBC, if they can include the extent to the
securitisation activities, they are able to gain 1 more mark.
 For the treatment of transaction, if WBC and CBA can show that the
transaction is sales or financing, they are able to gain 1 more mark too.
 For WBC, it is better that WBC states the recognition of gain on sale in the
report. Then it would be able to get 1 more mark.
Besides the short-cuts discussed above, there are some other details which, though
minor, would contribute to the making of more informative disclosures:
 With regard to Standard Chartered, by disclosing underlying exposures that
have been deducted from Tier 1 Capital, It would be able to gain 0.7 marks.
Furthermore, by disclosing the aggregate amount of securitisation exposure
broken down by exposure type, 0.4 marks could be added for Standard
Chartered.
 With regard to WBC and CBA, if they can disclose the regulatory capital
approaches, they could get 0.5 more marks. For accounting policies, if NAB,
WBC and CBA can show the method they used and show the key assumption,
33
they would be able to get 0.8 marks. Therefore, in this way, WBC and CBA
can get 1.3 more marks in total.
 For ANZ and CBA, they should state the objectives and explain them in detail.
It is better that they also describe how to achieve those objectives.
6. Conclusion
With respect to the marking system for the quality of disclosures regarding capital, the
marking standards are derived both from APS 330, BIPRU, and other appropriate
practices adopted by banks. The assignment of weightage to each standard is based on its
relative significance. ANZ’s disclosure enjoys the highest quality whereas the disclosure
provided by WBC is of the lowest quality. CBA has the second highest disclosure quality,
followed by the Standard Chartered. NAB’s disclosure regarding its capital position is
slightly better than the worst performer, Westpac.
The design for the marking system for the quality of disclosures regarding securitization
follows the same logic. The major difference would be that most marking standards are
based on the requirements specified under Table 9 of APS 330 (APRA, 2007). The UK
rules (BIPRU) are highly similar to the Australian ones with a few exceptions noted in the
previous discussion. ANZ again has the highest disclosure quality followed by NAB and
the Standard Chartered. Despite the fact that CBA’s disclosure is of higher quality
compared to Westpac, it is much worse compared to the other three banks.
34
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