Capital supportCapital support

Capital support

36. For the purposes of this Prudential Standard, in considering whether a facility, including a guarantee, provided to a related party constitutes capital support, APRA will have regard to, amongst other things, whether:

(a) the facility represents a recognised capital instrument or is otherwise accepted as standing in place of capital required to be held by a related entity; or

(b) the provider of the facility, in terms of either repayment or maturity, ranks below other senior unsecured or unsubordinated creditors; or

(c) the facility is provided by an ADI or other member of a Level 2 group and the funding provided flows through one member of the group (including any SPV) to another member of the group and the funding received by the second entity meets either (a) or (b).

37. In considering whether a facility (including a guarantee) provided to a non-related party[8] represents capital support, APRA will have regard to, amongst other things, whether:

(a) the facility represents a recognised capital instrument or is otherwise accepted as standing in place of capital required to be held by the entity; or

(b) the provider of the facility is subordinated to other creditors, and the facility is not otherwise captured by provisions in APS 112 or APS 113 which give regard to the level of subordination in determining capital requirements for such facilities.

38. In the event that a facility covered in paragraphs 36 or 37 represents a form of capital support, it must be considered for the purposes of this Prudential Standard to form part of an ADI’s “other capital investments”. In the event that such investments are not deducted from Tier 1 capital or Tier 2 capital, they must be risk-weighted at 400 per cent.