CA-2.2 CA-2.2 Limits on the Use of Different Forms of Capital
Tier 1: Core Capital
CA-2.2.1
Tier 1 capital must represent at least half of the total eligible capital after all adjustments to all elements of capital, have been made. i.e., the sum total of Tier 2 plus Tier 3 eligible capital must not exceed total Tier 1 eligible capital.
Apr 08CA-2.2.2
The CBB expects banks to meet the minimum CARs without undue reliance on innovative instruments, including instruments that have a step-up. Accordingly, the aggregate of issuances of non-common equity Tier 1 instruments with any explicit feature, (other than a pure call option), which might lead to the instrument being redeemed is limited (at issuance) to 15% of the consolidated bank's Tier 1 capital.
Apr 08CA-2.2.3
The limits on innovative Tier 1 instruments and Tier 2 subordinated debt are based on the amount of Tier 1 capital after deduction of goodwill pursuant to the Prudential Consolidation and Deduction Requirements Module (see Appendix CA-1 for an example how to calculate the 15% limit for innovative Tier 1 instruments and Appendix PCD-2 of PCD module for an example of the deduction effects and the caps).
Apr 08Tier 2: Supplementary Capital
CA-2.2.4
Tier 2 elements may be substituted for Tier 3 up to the Tier 3 limit of 250% of Tier 1 capital (as below) in so far as eligible Tier 2 capital does not exceed total Tier 1 capital, and long-term subordinated debt does not exceed 50% of Tier 1 capital after deduction of goodwill.
Apr 08Tier 3: Ancillary Capital
CA-2.2.5
Tier 3 capital is limited to 250% of a bank's Tier 1 capital that is required to support market risks. This means that a minimum of about 28.57% of market risks needs to be supported by Tier 1 capital that is not required to support risks in the remainder of the book.
Apr 08CA-2.2.6
Banks are entitled to use Tier 3 capital solely to support market risks as defined in chapters CA-9 to CA-14. This means that any capital requirement arising in respect of credit and counterparty risk, including the credit counterparty risk in respect of derivatives in both trading and banking books, needs to be met by Tier 1 and Tier 2 capital.
Apr 08
