Changes in the operational risk profiles of banks, due to outsourcing and offshoring, have emerged as another risk factor adding to the capital burden of banks.In its 2012 annual report, the Australian Prudential Regulation Authority highlighted "the extent to which the operational risk capital models of the [major banks] have captured the risks" associated with these activities, as well as with the overhaul of core technology systems.In his introduction to the regulator's annual report, APRA chairman John Laker said: "APRA has concluded that the current models of advanced ADIs generally understate operational risk capital requirements and are not sufficiently sensitive to material changes in operational risk profiles. As a result, APRA has been working closely with these ADIs in pursuing a range of improvements in their operational risk modeling and increases in the capital held against operational risk."There is some evidence of this trend in the financial disclosures of banks. Westpac, for example, increased its capital charge for operational risk capital by one third, to A$1.9 billion, over the past year. ANZ also lifted it operational risk charge, by 40 per cent, over the last year.Other themes highlighted by Laker in APRA's annual report include the strategic challenge of maintaining returns in a climate of low credit growth. "[Banks] are battle hardened but, fortunately, very few have been battle scarred," Laker wrote. "Though the possibility of failure must never be dismissed, boards and management have lifted their sights beyond survival to the strategic challenges of operating in an environment that is likely to remain very different from that before the crisis erupted, when volume growth seemed assured but risk was underpriced and capital and liquidity underappreciated."Strategic challenges have moved to centre stage in APRA's more intensive engagement with the boards of regulated institutions. The challenges vary across regulated institutions and industries but have three broad themes. One theme is the choice of business model appropriate to a macroeconomic setting in which subdued business volumes, low investment returns and global uncertainties may persist for some time. A second is responding to changes in the competitive environment as industries consolidate but innovation spawns new participants. "The ADI industry [is] accustomed to [a] vigorous balance sheet, sluggish credit demand and high funding costs. Consumer and business caution has resulted in a strong increase in household savings and the slowest pace in credit growth since the early 1990s recession. "These developments have been helpful to funding dynamics, with strong deposit growth enabling the larger ADIs to shrink their reliance on short-term wholesale funding. At the same time, however, these developments are denying ADIs the volume growth that had been the key driver of revenue and profitability."