To explain the limits outlined in Paragraph CA-2.2.4 on the contributions of AT1 and T2 Capital to T1 and Total Capital, a simple example is given below where a conventional bank licensee has BD650mn of Core Equity Tier One Capital and BD200mn of AT1 and BD300mn of T2 Capital and BD10,000mn of total risk-weighted assets:
(a) 6.5% CET1 = BD650mn;
(b) 8.0% T1 = BD800mn (i.e. only BD150mn of the AT1 may be included in the T1 minimum requirement);
(c) 10% Total Capital = BD1,000 mn (i.e. only BD200mn of the T2 Capital may be included in the Total Capital requirement).
This means that if the conventional bank licensee only has BD650mn of CET1, it cannot comply with the additional Capital Conservation Buffer Requirement of 2.5% nor can it use excess AT1 or T2 Capital to meet this requirement. Although it would appear that the conventional bank licensee has BD1,150mn of total capital, only BD1,000 can be used to meet the minimum ratios. This example serves to underline the importance of CET1. Unless a conventional bank licensee can meet the CET1 minimum CARs of 6.5% and 9.0% mentioned above, it may not be able to meet any of the other minimum capital adequacy ratios outlined in Paragraph CA-2.2.1.
January 2015
