Macquarie Bank’s breaches of regulatory reporting requirements highlight the challenges in managing a diversified financial services group, Moody’s Investors Services said in response to APRA’s announcement that it has penalised the bank for the breaches.
Macquarie Bank has been penalised for incorrect treatment of intra-group arrangements for the purposes of calculating capital and related entity exposure metrics, as well as multiple breaches of APRA’s reporting standards on liquidity between 2018 and 2020.
APRA said in a statement that the breaches resulted from deficiencies in Macquarie Bank’s ability to manage the operational risk “inherent in the complex intra-group structure, within which it transacts with related entities”.
In response, the regulator has increased the bank’s liquidity and operational risk capital requirements.
From April 1, the bank must hold an operational capital overlay of A$500 million, a 15 per cent add-on to the net cash outflow component of its liquidity coverage ratio calculation and a 1 per cent adjustment to the available stable funding component of its net stable funding ratio calculation.
APRA said the breaches are historical and do not impact the overall soundness of Macquarie Group’s capital or liquidity positions.
APRA said it will also subject the bank to intensified supervision to address its “persistent difficulties” in complying with its prudential obligations.
Moody’s said the additional capital overlay would be implemented through an increase in the bank’s level 1 risk-weighted assets. Macquarie Bank’s level 1 common equity tier 1 capital ratio stood at 12.7 per cent at the end of September last year.
Moody’s said the increase in RWA is expected to reduce CET1 by around 81 basis points.
“We believe the additional regulatory requirements would have only a moderate negative effect on the bank’s NSFR and LCR. We estimate that the pro-forma impact as at 31 December 2020 would be a reduction in the LCR ratio from 171.6 per cent to 149 per cent but still remaining very strong.
“NSFR is likely to fall by 1 to 2 percentage points from the bank’s reported ratio of 112 per cent at December 2020.”