Banking (prudential standard) determination No. 4 of 2006 - Prudential Standard APS 111 - Capital Adequacy: Measurement of Capital
Objective and key requirements of this PObjective and key requirements of this Prudential Standard
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Objective and key requirements of this Prudential Standard
For capital adequacy purposes, authorised deposit-taking institutions must hold a minimum amount of Tier 1 capital on both a stand-alone (Level 1) and consolidated banking group (Level 2) basis. In addition, they may include an amount of Tier 2 capital as part of their required capital holdings, up to the limits specified in this Prudential Standard.
This Prudential Standard sets out the essential characteristics that an instrument must have to qualify as Tier 1 or Tier 2 capital for inclusion in an authorised deposit-taking institution’s capital base for assessing Level 1 and Level 2 capital adequacy.
Tier 1 capital comprises the highest quality capital elements. Tier 2 capital includes other elements which, to varying degrees, fall short of the quality of Tier 1 capital but nonetheless contribute to the overall strength of an institution as a going concern.
For capital adequacy purposes, an authorised deposit-taking institution’s Level 1 and Level 2 capital base is defined as the sum of Tier 1 and Tier 2 capital after all specified deductions and adjustments, subject to the various limits that apply.
This Prudential Standard forms part of a comprehensive set of prudential standards that deal with the measurement of an authorised deposit-taking institution’s capital adequacy at Level 1 and Level 2.