Banking (prudential standard) determination No. 3 of 2007 - Prudential Standard APS 110 - Capital Adequacy
Measurement of capital adequacyMeasurement of capital adequacy
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Measurement of capital adequacy
- APRA adopts a tiered approach to the measurement of an ADI’s capital adequacy. It assesses the ADI’s financial strength at three levels in order to ensure that the ADI is adequately capitalised, both on an individual and a group basis. These levels are:
(a) Level 1 - either:
(i) the ADI itself; or
(ii) the ELE (refer to paragraph 5);
(b) Level 2 - either:
(i) if the ADI is not a subsidiary of an authorised NOHC and the ADI has subsidiaries in addition to those included in any ELE, the consolidation of the ADI and all its subsidiary entities other than non-consolidated subsidiaries (refer to Attachment C); or
(ii) if the ADI is a subsidiary of an authorised NOHC, the consolidation of the immediate parent NOHC of the ADI and all the immediate parent NOHC’s subsidiary entities (including any ADIs and their subsidiary entities) other than non-consolidated subsidiaries (refer to Attachment C)
unless APRA otherwise determines, in writing, a different Level 2 composition for a group of companies of which the ADI is a member; and
(c) Level 3 - the conglomerate group at the widest level (refer to Attachment B).
- For the purposes of this Prudential Standard, Level 1 and Level 2 requirements apply in accordance with the schedule set out below.
| Corporate structure | Level 1 | Level 2 |
|---|---|---|
| ADI with no ELE | ADI must meet the requirements of this Prudential Standard on a Level 1 basis (refer to paragraph 10(a)(i)). | |
| ADI forming part of an ELE | ADI must ensure that the requirements are met collectively by the ELE on a Level 1 basis (refer to paragraph 10(a)(ii)). | |
| ADI not a subsidiary of an authorised NOHC | ADI must ensure that the requirements are met on a Level 2 basis (refer to paragraph 10(b)(i)). | |
| ADI is a subsidiary of an authorised NOHC | Authorised NOHC must ensure that the requirements are met on a Level 2 basis (refer to paragraph 10(b)(ii)). |
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Level 1 assessments are applicable to all ADIs. Level 2 assessments are applicable to ADIs that are members of a Level 2 group (refer to paragraph 10(b)). Level 3 assessments only apply to ADIs and authorised NOHCs prescribed, in writing, by APRA and the conglomerate groups they head (refer to Attachment E).