When it comes to allocating funds for lending, Westpac (like most banks) tends to look at any move away from stale ideas on capital adequacy balance on a risk-adjusted basis. According to Sean Carmody, Westpac Group General Manager, Risk Analytics and Insights, sharp decline in property values might involve greater decline in some regions rather than others.  "We also have to think about the timing of those revaluations. Also need to think about what it would mean for GDP growth and unemployment rates in Australia," he said yesterday at the Actuaries Institute Banking on Change conference in Sydney. "For our consumer lending portfolio, employment is one of the most important drivers of credit risk."  In terms of the regulatory requirements for Westpac, the minimum Common Equity Tier 1 is 4.5 per cent of risk weighted assets. On top of this there will be a capital conservation buffer of 3.5 per cent, including a premium for being domestically important, bringing the requirements to a minimum of eight per cent for its CET1 ratio.  However, if Westpac or the banking system generally was under stress, Carmody says he'd aim to be well above the bare minimum. This translates into Westpac's preferred range of between 8.75 per cent and 9.25 per cent. Nevertheless, this level of stress testing has primarily been of interest to regulators and senior management, Carmody said, adding that more people in the business needed to be more aware of capital adequacy restraints.  "This all seems a long way from the day-to-day business of bankers who are primarily in the business of originating lending. So, we are trying to apply stress testing in a more targeted way - for example, testing loans into areas of high urban density development, to assess risk from lending." For this, the bank's backrooms may work backwards to come up with total settings - for instance "what if" scenarios might be run to model if lowering the maximum loan to value ratios would boost business. Camody said the Westpac house view was that there might be restrictions on the use of modelling for certain sectors, but he expects it will continue to play an important role in determining capital for portfolio and risk appetite decisions. "The model is not dead, it's just resting," he said, with apologies to Monty Python's parrot sketch.