Banking (prudential standard) determination No. 3 of 2006 - Prudential Standard APS 110 - Capital Adequacy
Measurement of capital adequacyMeasurement of capital adequacy
Start here
Get a plain-English read of Measurement of capital adequacy
Turn the raw legal text into a practical explanation grounded in Banking (prudential standard) determination No. 3 of 2006 - Prudential Standard APS 110 - Capital Adequacy.
Measurement of capital adequacy
- To ensure that ADIs are adequately capitalised on both a stand-alone and group basis, APRA adopts a tiered approach to the measurement of an ADI’s capital adequacy by assessing the ADI’s financial strength at three levels (refer illustrative diagram in the Attachment):
(a) Level 1 – the ADI on a stand-alone basis;
(b) Level 2 – the consolidated banking group i.e. the ADI and all its subsidiaries other than non-consolidated subsidiaries (refer AGN 110.2); and
(c) Level 3 – the conglomerate group at the widest level.
-
Level 1 and Level 2 assessments are applicable to all ADIs. Level 3 assessment applies only to ADIs prescribed by APRA (refer AGN 110.3).
-
Measurement of an ADI’s capital adequacy at each of the above three levels is based on:
(a) Level 1 & Level 2 – a risk-based capital adequacy framework based on the Basel Capital Accord (refer AGN 110.4); and
(b) Level 3 – the methodology agreed with APRA (refer AGN 110.3).