Operational and Technological Risk
2.1. Capital and regulatory requirements can limit the rise of digital banks as digital banks need to have adequate capital to comply with the regulatory requirements set by authorities. This may be a challenge for digital banks, as they need to build up their capital base from scratch, while traditional banks already have established capital bases. Another factor that can be an impediment to the competitiveness of digital banks is their lack of experience and reputation compared to traditional banks. This can lead to a lack of customer trust, which is crucial for banks to attract and retain customers.
2.2. One emerging risk faced by modern banks is cybersecurity risk, which is becoming increasingly important as more banking activities are conducted online. Another is operational risk, as digital banks may not have the same level of expertise and experience as traditional banks in managing operations and systems. Additionally, digital banks may face reputational risk if they are unable to provide the same level of customer service as traditional banks, leading to negative publicity and loss of customers.
2.3. The Advanced Management Approach (AMA) for operational and technology risk management under the Basel III Accord requires banks to take a risk-based approach to operational and technology risk management, including developing and implementing a framework for identifying, assessing, and mitigating operational and technology risks. The AMA is being replaced by the Standardized Approach for Operational Risk (SA-OR), which replaces the AMA with a more standardized approach to operational risk management. This change is being made to improve the accuracy and consistency of operational risk management across banks. In my personal opinion, this change is necessary, as it will improve the overall quality of risk management in the banking sector.
3.1. A bank share buyback is a process by which a bank buys back its own shares in order to reduce the number of outstanding shares and increase earnings per share. The share buybacks described above may be justified if the banks have surplus capital, and the share buyback would result in a higher return for shareholders. However, the buybacks should not be at the expense of capital adequacy, as banks need to maintain adequate capital to comply with the Basel III Accord’s capital adequacy requirements.
3.2. Based on the information provided, National Australia Bank (NAB) may be the bank most likely to engage in a further share buyback in the near future. The maximum share buyback NAB could engage in would depend on its capital position, as share buybacks should not impact its capital adequacy. To calculate the maximum buyback, one could use the bank’s capital position and the regulatory requirements for capital adequacy under Basel III.
3.3. A higher total risk-weighted assets (RWA) can result in a decrease in the CET1 ratio of a bank under the Basel III capital adequacy framework if the growth in RWA is not accompanied by a proportionate increase in CET1 capital. CET1 capital is the highest quality capital a bank can hold, and the CET1 ratio is calculated as CET1 capital divided by total RWA. If the growth in RWA is not matched by a corresponding increase in CET1 capital, the CET1 ratio will decrease, indicating a lower level of capital adequacy.
"Looking for a Similar Assignment? Get Expert Help at an Amazing Discount!"
