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CA-B.2.1

The transitional arrangements for implementing the new standards help to ensure that the banking sector can meet the higher capital standards through reasonable earnings retention and capital raising, while still supporting lending to the economy. The transitional arrangements are as follows:

(a) Implementation of this Module begins on 1 January 2015. As of 1 January 2015, conventional bank licensees are required to meet the following new minimum CAR requirements taking each component of capital as defined in Chapters CA-2 and CA-2A divided by total risk-weighted assets (RWAs) as defined in Paragraph CA-1.1.3:

Components of Consolidated CARs
  Optional Minimum Ratio Required
Core Equity Tier 1 (CET 1)   6.5%
Additional Tier 1 (AT1) 1.5%  
Tier 1 (T1)   8%
Tier 2 (T2) 2%  
Total Capital   10%
Capital Conservation Buffer (CCB) (see below)   2.5%
CARs including CCB
CET 1 plus CCB   9%
Tier 1 plus CCB   10.5%
Total Capital plus CCB   12.5%

Components of Solo CARs
  Optional Minimum Ratio Required
Core Equity Tier 1 (CET1)   4.5%
Additional Tier 1 (AT1) 1.5%  
Tier 1 (T1)   6.0%
Tier 2 (T2) 2%  
Total Capital   8.0%
Capital Conservation Buffer (CCB) (see below)   0%
CARs including CCB
CET 1 plus CCB   N/A
Tier 1 plus CCB   N/A
Total Capital plus CCB   N/A
(b) The difference between the Total Capital plus CCB (Capital Conservation Buffer — see Chapter CA-2A for more details) of 12.5% and the T1 plus CCB requirement (10.5%) for the consolidated CAR can be met with T2 and higher forms of capital;
(c) The regulatory adjustments (i.e. deductions), including amounts above the aggregate 15% limit for significant investments in financial institutions, mortgage servicing rights, and deferred tax assets from temporary differences, are fully deducted from CET1 by 1 January 2019;
(d) The regulatory adjustments (refer to Section CA-2.4) begin at 20% of the required adjustments to CET 1 on 1 January 2015, 40% on 1 January 2016, 60% on 1 January 2017, 80% on 1 January 2018, and reach 100% on 1 January 2019. The same transition approach applies to deductions from AT1 and T2 capital. Specifically, the regulatory adjustments to AT1 and T2 capital begin at 20% of the required deductions on 1 January 2015, 40% on 1 January 2016, 60% on 1 January 2017, 80% on 1 January 2018, and reach 100% on 1 January 2019. During the transition period, the remainder of exposures held prior to 1st January 2015 not deducted from capital is subject to the risk weights outlined in the October 2014 version of Chapter CA-3;
(e) The treatment of capital issued out of subsidiaries and held by third parties (e.g. minority interest) is also phased in. Where such capital is eligible for inclusion in one of the three components of capital according to Paragraphs CA-2.3.1 to CA-2.3.5, it can be included from 1 January 2015. Where such capital is not eligible for inclusion in one of the three components of capital but is included under the existing treatment, 20% of this amount must be excluded from the relevant component of capital on 1 January 2015, 40% on 1 January 2016, 60% on 1 January 2017, 80% on 1 January 2018, and reach 100% on 1 January 2019; and
(f) Capital instruments that no longer qualify as non-common equity T1 capital or T2 capital are phased out beginning 1 January 2015. Fixing the base at the nominal amount of such instruments outstanding on 1 January 2015, their recognition is capped at 90% from 1 January 2015, with the cap reducing by 10 percentage points in each subsequent year. This cap is applied to AT1 and T2 separately and refers to the total amount of instruments outstanding that no longer meet the relevant entry criteria. To the extent an instrument is redeemed, or its recognition in capital is amortised, after 1 January 2015, the nominal amount serving as the base is not reduced. In addition, instruments with an incentive to be redeemed are treated as follows:
(i) For an instrument that has a call and a step-up prior to 1 January 2015 (or another incentive to be redeemed), if the instrument is not called at its effective maturity date and on a forward-looking basis meets the new criteria for inclusion in T1 or T2, it continues to be recognised in that tier of capital;
(ii) For an instrument that has a call and a step-up on or after 1 January 2015 (or another incentive to be redeemed), if the instrument is not called at its effective maturity date and on a forward looking basis meets the new criteria for inclusion in T1 or T2, it continues to be recognised in that tier of capital. Prior to the effective maturity date, the instrument would be considered an "instrument that no longer qualifies as AT1 or T2" and is therefore phased out from 1 January 2015;
(iii) For an instrument that has a call and a step-up between 12 September 2012 and 1 January 2015 (or another incentive to be redeemed), if the instrument is not called at its effective maturity date and on a forward looking basis does not meet the new criteria for inclusion in T1 or T2, it is fully derecognised in that tier of regulatory capital from 1 January 2015;
(iv) For an instrument that has a call and a step-up on or after 1 January 2015 (or another incentive to be redeemed), if the instrument is not called at its effective maturity date and on a forward looking basis does not meet the new criteria for inclusion in T1 or T2, it is derecognised in that tier of regulatory capital from the effective maturity date. Prior to the effective maturity date, the instrument would be considered an "instrument that no longer qualifies as AT1 or T2" and is therefore phased out from 1 January 2015; and
(v) For an instrument that had a call and a step-up on or prior to 12 September 2012 (or another incentive to be redeemed), if the instrument was not called at its effective maturity date and on a forward looking basis does not meet the new criteria for inclusion in T1 or T2, it is considered an "instrument that no longer qualifies as AT1 or T2" and is therefore phased out from 1 January 2015.
Amended: July 2015
January 2015