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  • 2. Risk Components

    • CA-5.5.21

      In general, the measure of an equity exposure on which capital requirements is based is the value presented in the financial statements, which may include unrealised revaluation gains. Thus, for example, equity exposure measures will be:

      (a) For investments held at fair value with changes in value flowing directly through income and into regulatory capital and where a discount is applied on fair value (as explained in CA-2.1.5), the exposure is equal to the fair value adjusted to exclude that discount part. Refer to appendix CA-17;
      (b) For investments held at fair value with changes in value not flowing through income but into a tax-adjusted separate component of equity and where a discount is applied on fair value (as explained in CA-2.1.5), the exposure is equal to the fair value adjusted to exclude that discount part. Refer to appendix CA-17; and
      (c) For investments held at cost or at the lower of cost or market, exposure is equal to the cost or market value presented in the balance sheet.47

      47 If "latent gain" is allowed on such investment (as explained in CA-2.1.5), the cost will be adjusted to include that allowed gain.

      Amended: April 2011
      Apr 08

    • CA-5.5.22

      Holdings in funds containing both equity investments and other non-equity types of investments can be either treated, in a consistent manner, as a single investment based on the majority of the fund's holdings or, where possible, as separate and distinct investments in the fund's component holdings based on a look-through approach.

      Apr 08

    • CA-5.5.23

      Where only the investment mandate of the fund is known, the fund can still be treated as a single investment. For this purpose, it is assumed that the fund first invests, to the maximum extent allowed under its mandate, in the asset classes attracting the highest capital requirement, and then continues making investments in descending order until the maximum total investment level is reached. The same approach can also be used for the look-through approach, but only where the bank has rated all the potential constituents of such a fund.

      Apr 08