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  • CA-A.3 CA-A.3 Capital Adequacy Ratio

    • CA-A.3.1

      Historically, on a consolidated basis, the CBB has set a minimum Capital Adequacy Ratio ("CAR") of 12.0% for all locally incorporated banks. Furthermore, on a solo basis, the parent bank has been required to maintain a minimum CAR of 8.0% (i.e. unconsolidated). The arrangements outlined below will apply once banks have been subject to a Pillar 2 risk profile assessment by the CBB or an acceptable audit firm. Until such an assessment has been completed, the existing 12% and 8% minimum capital ratio requirements (as outlined in Module CA-2.5 October 2006 edition) will remain in place.

      Apr 08

    • CA-A.3.2

      CAR is calculated by applying the regulatory capital to the numerator and risk-weighted assets to the denominator.

      Apr 08

    • CA-A.3.3

      All locally incorporated banks are required to maintain a capital ratio both on a solo (and a consolidated basis where applicable) above the minimum "trigger" CAR of 8%. Failure to remain above the trigger ratio will result in Enforcement and other measures as outlined in Section CA-1.4.

      Apr 08

    • CA-A.3.4

      All locally incorporated banks will be required to maintain capital ratios above individually set "target" CARs on a solo and on a consolidated basis. These target CARs will be set at an initial minimum of 8.5% and may in the case of high risk banks be set at levels above the 12.5% target ratio set prior to January 2008. Failure to remain above the target ratio will result in Enforcement and other measures as outlined in Section CA-1.4.

      Apr 08

    • Eligible Capital

      • CA-A.3.5

        Banks are allowed three classes of capital (see section CA-2.1) to meet their capital requirements for credit, operational and market risk, as set out below:

        Tier 1: Core capital — May be used to support credit, operational and market risk

        Tier 2: Supplementary capital — May be used to support credit, operational and market risk; and

        Tier 3: Ancillary capital — May be used solely to support market risk.

        Apr 08

    • Risk-weighted Assets

      • CA-A.3.6

        Total risk-weighted assets are determined by:

        (a) Multiplying the capital requirements for market risk and operational risk by 12.5; and
        (b) Adding the resulting figures to the sum of risk-weighted assets for credit risk.
        Amended: January 2011
        Apr 08

      • CA-A.3.7

        For the measurement of their credit risks, banks have a choice, subject to the written approval of the CBB, between two broad methodologies:

        (a) One alternative is to measure the risks in a standardised approach, applying the measurement framework described in Chapter CA-3 of this Module; and
        (b) The second methodology (i.e. internal ratings-based approach) is set out in detail in Chapter CA-5 including the procedure for obtaining the CBB's approval. This methodology is subject to the fulfilment of certain conditions. The use of this methodology is, therefore, conditional upon the explicit approval of the CBB.
        Amended: April 2011
        Amended: January 2011
        Apr 08

      • CA-A.3.8

        Credit risk — Securitization framework is set out in Chapter CA-6. Banks must apply the securitisation framework for determining regulatory capital requirements on exposures arising from traditional and synthetic securitisations or similar structures that contain features common to both.

        Amended: January 2011
        Apr 08

      • CA-A.3.9

        For the measurement of their operational risks, banks have a choice, subject to the written approval of the CBB, between two broad methodologies:

        (a) One alternative is to measure the risks in a basic indicator approach, applying the measurement framework described in Chapter CA-7 of this Module; and
        (b) The second alternative methodology (i.e. the standardised approach) is set out in detail in Chapter CA-7 including the procedure for obtaining the CBB's approval. This methodology is subject to the fulfilment of certain conditions (as outlined in Module OM).The use of this methodology is, therefore, conditional upon the explicit approval of the CBB.
        Amended: January 2011
        Apr 08

      • CA-A.3.10

        For the measurement of their market risk, banks have a choice, subject to the written approval of the CBB, between two broad methodologies:

        (a) One alternative is to measure the risks in a standardised approach, applying the measurement frameworks described in Chapters CA-9 to CA-13 of this Module; and
        (b) The second alternative methodology (i.e. the internal models approach) is set out in detail in Chapter CA-14 including the procedure for obtaining the CBB's approval. This methodology is subject to the fulfilment of certain conditions. The use of this methodology is, therefore, conditional upon the explicit approval of the CBB.
        Amended: April 2011
        Amended: January 2011
        Apr 08