An evaluation of the effectiveness of Value-at-Risk (VaR) models for Australian banks under Basel III

This study compares Value-at-Risk (VaR) measures for Australian banks over a period that includes the Global Financial Crisis (GFC) to determine whether the methodology and parameter selection are important for capital adequacy holdings that will ultimately support a bank in a crisis period. VaR methodology promoted under Basel II was largely criticised during the GFC for its failure to capture downside risk. However, results from this study indicate that 1-year parametric and historical models produce better measures of VaR than models with longer time frames. VaR estimates produced using Monte Carlo simulations show a high percentage of violations but with lower average magnitude of a violation when they occur. VaR estimates produced by the ARMA GARCH model also show a relatively high percentage of violations, however, the average magnitude of a violation is quite low. Our findings support the design of the revised Basel II VaR methodology which has also been adopted under Basel III.

Corporate social responsibility reporting : a business strategy by Australian banks?

The growth of voluntary corporate social responsibility (CSR) reporting reflects society's expectations for business to set higher ethical standards and to undertake business in a way that meets the profit imperative (the bottom line). Additionally, the community expects socially and environmentally responsible behaviour practices; the so-called triple bottom line approach. The paper briefly reviews the development of corporate social responsibility reporting from the perspective of two large Australian banks and attempts to understand their motivation for voluntary disclosure. Stakeholder theory and game theory provide a means to analyse why banks undertake CSR reporting. The paper compares Westpac and National Australia Bank's CSR reporting over the period 2004-2005 utilising external rating agencies and CSR reports to determine the extent of disclosure in relation to employees, environment, community and customers. The paper concludes with a discussion of the pros and cons of CSR, the role of regulation and recommendations for future policy direction.

A study into how Australian banks use social media

Social Media is a term commonly used to describe a group of individual web based services that have grown beyond the provisioning of the capability to connect, network or blog. The popular social networking services have evolved into a ‘platform’ by incorporating a multitude of functionalities through an array of applications to attract millions of users. This has created a favourable environment for businesses to exploit the benefit of having access to millions of social media users by using it as a business support tool. Studies indicate that social media services are being used by businesses for engaging with the general public, enhancing customer interaction, and for crisis communications. Whilst there are many businesses who have adopted social media, others have either rejected the idea or are still unsure about how to proceed. This paper analyses the functionality of selected social media services in order to explore how Australian banks use such services strategically. It reports findings from a longitudinal study of Australian bank use of four popular social media services: Facebook, MySpace, Twitter, and YouTube.

The adoption of social media by Australian banks to communicate with the public

 This thesis focuses on social media adoption by the Australian banks as method of communication. It proposes a ‘technology independent’ adoption model with components that encompass sociotechnological factors governing the adoption of social media. The model can also be adapted by any business organisation and prove beneficial for future.

Facebook content analysis: a study into Australian banks' social media community engagement

Understanding the motives that encourage users to adopt social media to communicate with businessesis very important. This research study was conducted with Australian banks and adds to the developmentof empirically tested social media adoption model consisting of technological and social communicationaspects (Senadheera, 2015). This chapter presents the findings of the research study based on analysisof wall posts gathered from Australian banks’ Facebook presence in the year 2013. The research studyinvolves a thematic analysis of frequently used words by Australian banks in their respective Facebookwall posts following an outcome of a word frequency test conducted using NVivo. This analysis wasconducted with the proposed adoption model as the basis to determine whether banks’ Facebook contentaddresses the basic user requirements driving them to adopt social media to communicate with Australianbanks. The results strengthens the robustness and the applicability of the social media adoption model.

Relationship between CEO salaries and performance of banks in Australia and Germany

Purpose: The purpose of this paper was to examine the relationship between CEO salaries and firm performance in the banking sector. Design/methodology/approach: The data relating to a six year period (2007 - 2012) was gathered from databases and the websites of the major banks in Australia and Germany. The data was subjected to Regression and Pearson Correlation Analysis to test if there was a positive correlation between total salary including incentive bonuses against the variables indicating the performance of the firm. Findings: The tests indicate a weak relationship between the CEO salary package and the key indicators of a firm's performance in Australian banks but a strong relationship in the German banks. Research limitations/implications: This study was limited in that it only covers the major banks in Australia and Germany and may therefore not be relevant to different countries with different economic climates. Practical implications: This study provides additional evidence to support the continued debate regarding the need to have greater accountability for CEO salary packages linked to actual performance measures of firms. Originality/value: This paper adds to the literature in so far as it compares two different Countries of the banking sector in a global market

Understanding consumer adoption of internet banking : an interpretive study in the Australian banking context

This paper reports key findings from an interpretive study of Australian banking consumer experiences with the adoption of internet banking. The paper provides an understanding of how and why specific factors affect the consumer decision whether or not to bank on the internet, in the Australian context. A theoretical framework is provided that conceptualizes and links consumer-oriented issues influencing adoption of internet banking. The paper also provides a set of recommendations for Australian banks. Specifically, the findings suggest that convenience is the main motivator for consumers to bank on the internet, while there is a range of other influential factors that may be modulated by banks. The findings also highlight increasing risk acceptance by consumers in regard to internet-based services and the growing importance of offering deep levels of consumer support for such services. Gender differences are also highlighted. Finally, the paper suggests that banks will be better able to manage consumer experiences with moving to internet banking if they understand that such experiences involve a process of adjustment and learning over time, and not merely the adoption of a new technology.

The relationship between exchange rates, interest rates and Australian bank returns

Although there has been significant research on US financial intermediaries' stock returns and sensitivity to interest yields, there has only been limited research on Australian bank stock returns and key macro variables, such as interest rates and exchange rates. The aim of this article is to examine this relationship for four major Australian banks, namely the Australia New Zealand bank (ANZ), the Commonwealth Bank of Australia (CBA), the National Australia Bank (NAB) and the Westpac Banking Corporation (WBC). We use the EGARCH model and examine the relationship using monthly data covering the period 1992 to 2007. The results suggest that for all four banks: (1) there is a similar and statistically significant negative relationship between interest rates and stock returns; and (2) there is evidence of an increase in returns during the period of appreciation of the Australian dollar.

The productivity and performance of Australia’s major banks since deregulation

The aim of this study is to present some measures of the performance of banks operating in Australia since the deregulation of the Australian financial system in early 1980s; including the periods of financial market instability (the early 1990s and mid to late 2000s). In undertaking this measurement two approaches will be used. The first simply applies standard financial indicators. The second approach applies data envelopment analysis (DEA), to determine Malmquist indices of the levels of and the changes in the efficiency and productivity of Australian banks. The empirical results demonstrate the effect of deregulation and periodic financial crisis’s on the performance of individual banks, and the major part of the Australian banking sector. Overall the productivity performance of the Australian banks tended to improve considerably in those periods of strongest economic growth (i.e. the mid 1980s and 2000s).

Does the global reporting initiative influence sustainability disclosures in Asia-Pacific banks?

This article examines sustainability disclosures by the major banks in the Asia-Pacific region (the six largest banks from each of four countries: Australia, Japan, China and India) during the period 2005–2012. The findings show sustainability disclosures by banks that participate in the global reporting initiative (GRI) are significantly higher than disclosures by those banks that have not participated in the GRI. Amongst those banks that have participated in the GRI there is a higher rate of disclosure by externally assured banks than by non-externally assured banks. Among the GRI participating banks, there was significant variation of disclosures between countries. Disclosures by Australian banks appeared to be significantly higher than disclosures by banks in any other countries under observation. The findings are discussed from a moral legitimacy perspective. Consistent with this view, the banks under study were responsive to the GRI, which is seen as an influential actor that shapes and reflects the expectations of the broader community. However, the role of the GRI in minimising country differences in disclosure by banks is not significant.

Australia

Crisis management in the banking sector is a topical issue in Australia. This is not because financial institutions are facing a financial crisis. Indeed, in 2012, the International Monetary Fund (IMF) noted that ‘Australia has a history of few bank failures, even fewer financial crises, and its banking sector emerged from the global financial crisis relatively well.’ Rather, crisis management of banks is topical because there has been the first full review of Australia’s banking and financial system in nearly 20 years, which has examined and raised issues about the resilience and capacity of the Australian regime in this post GFC world. At the time of writing, the Report’s recommendations, including for Australian banks to meet capital standards in line with emerging international practice, are the subject of industry debate in advance of the Australian government’s decision.

Productivity and efficiency analysis of Australia banking sector under deregulation

This paper conducts productivity and efficiency analysis of banks operating in Australia since the deregulation of the Australian financial system in early 1980s. Applying data envelopment analysis (DEA), with a moving window, the Malmquist indices are determined in order to investigate the levels of and the changes in the efficiency of Australian banks over the period from 1983 to 200 I. The DEA window analysis is adopted in order to relieve the small sample problem that in previous studies has proved problematic in the study of the Australian banking sector. The pal1icular window used in this case has been carefully designed to ensure the robustness of the efficiencies scores to changes in the window width. A second-stage regression is conducted by using the unconditional bootstrap approach suggested by Xue and Harker (1999) to overcome the dependency and heteroskedasticity of DE A efficiency scores. The empirical results demonstrate the effect of deregulation on the performance of individual banks, banks of different organizational types and the entire Australian banking sector.