Commitment to Risk Management
Amid the growing diversity and complexity of banking operations, financial institutions are exposed to various risks, including credit, market operations, information technology, legal, settlement and other risks. We recognize the conducting of operations tailored to the risks and managing such risks as a key issue relating to overall management. In order to implement our business strategy while maintaining our financial stability, we maintain comprehensive risk management and control measures.
MHFG maintains basic policies for risk management established by its Board of Directors that are applicable to the entire group. These policies clearly define the kinds of risks to be managed, set forth the organizational structure and provide for the human resources training necessary for appropriate levels of risk management. The policies also provide for audits to measure the effectiveness and suitability of the risk management structure. In line with these basic policies, we maintain various measures to strengthen and enhance the sophistication of our risk management system.
Risk Management Structure
Each of our subsidiaries adopts appropriate risk management measures for its business based on the size and nature of its risk exposures, while MHFG controls risk management for the Group as a whole. At MHFG, the Risk Management Committee chaired by the Group Chief Risk Officer (Group CRO) provides integrated monitoring and management of the overall risk for the Group.
The Group CRO reports the risk management situation to the Board of Directors, the Risk Committee, the Executive Management Committee and the President & Group CEO, on a regular basis and as needed. MHFG regularly receives reports and applications concerning the risk management situation from our core group companies and gives them appropriate instructions concerning risk management.
Our core group companies each maintains its own system for managing various types of risk, regularly receiving reports on the status of risk at their respective subsidiaries, and gives them appropriate instructions concerning risk management.
- Risk Management Structure
Approach to the Basel Regulatory Framework
Basel Ⅲ Framework, the regulations for international standards of the health of banks, is being phased in from 2013, which consists of minimum capital requirements, a leverage ratio and a global liquidity standard. Basel Ⅲ is based on the Basel Ⅱ framework which requires the observance of "three pillars." "Pillar 1" is minimum requirements relating to risk which should be maintained by banks. "Pillar 2" is the self–disciplined risk management by financial institutions with a supervisory review process. "Pillar 3" is market discipline allowing for assessment by the market through appropriate disclosure.
We have been calculating our capital adequacy ratios by applying the Advanced Internal Ratings Based approach for the calculation of credit risk from March 31, 2009 and the Advanced Measurement Approach for the calculation of operational risk from September 30, 2009. In Japan, from March 31, 2013, the minimum capital requirements based on Basel Ⅲ began to be phased in, and we have been calculating capital adequacy ratios based on the revisions to capital adequacy guidelines published by the Financial Services Agency. The Basel Committee continues to review the treatments related to capital requirements. We will comply with new requirements appropriately. We have been identified as a G–SIB by the Financial Stability Board in November 2015, and the stricter capital requirements began to be phased in from March 31, 2016.
A leverage ratio also has been implemented under "Pillar 3" from March 31, 2015 and we began disclosing it accordingly. Also a global liquidity standard has been implemented under "Pillar 1" from March 31, 2015 in Japan, and we have been calculating our liquidity coverage ratio pursuant to such standard.
Advanced Internal Ratings Based (AIRB) Approach
AIRB is one of the calculation methods for credit risk assets provided for by Basel Ⅱ. Under AIRB, both probability of default and loss given default used for calculation of credit risk assets are estimated by the bank's own internal experiences.
Advanced Measurement Approach (AMA)
AMA is one of the calculation methods for operational risk assets provided for by Basel Ⅱ. AMA is a risk asset calculation method based on statistics that not only utilizes data from internal losses experienced by the company, but also utilizes scenario data to calculate the impact of events that may be experienced in the future.