APRA has increased liquidity and operational risk capital requirements of Macquarie Bank Limited, in response to multiple material breaches of the prudential and reporting standards set by APRA. The enforcement action relates to the incorrect treatment of specific intra-group funding arrangements for calculating capital and related entity exposure metrics as well as multiple breaches of reporting standards on liquidity between 2018 and 2020. These 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 its related entities. The increases in the capital and liquidity requirements of Macquarie Bank will take effect from April 01, 2021.
The breaches are historical and do not impact on the overall soundness of Macquarie Group’s capital or liquidity positions. However, they raise serious questions about the bank’s risk management practices and ability to calculate and report key prudential ratios. As a consequence of the breaches, APRA will require:
- Macquarie Bank to hold an operational capital overlay of $500 million, reflecting deficiencies in its management of operational risk inherent in the bank’s intra-group structure
- 15% add-on to the net cash outflow component of its liquidity coverage ratio calculation
- 1% adjustment to the available stable funding component of the net stable funding ratio calculation
In addition, APRA will require Macquarie Bank to resubmit and restate selected regulatory returns. APRA will also subject Macquarie Bank to intensified supervision to address the bank’s persistent difficulties in complying with its prudential obligations. Further action is also possible as more information comes to light about the root causes of these breaches. The APRA Deputy Chair John Lonsdale said, "For one of the country’s largest financial institutions to have committed breaches of this nature is disappointing and unacceptable."
Related Link: Media Release
Keywords: Asia Pacific, Australia, Banking, Basel, Liquidity Risk, Reporting, LCR, NSFR, Regulatory Capital, Macquarie Bank, Enforcement Action, APRA
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