Banking (prudential standard) determination No. 4 of 2007 - Prudential Standard APS 111 - Capital Adequacy: Measurement of Capital
Eligible capitalEligible capital
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Eligible capital
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An ADI must ensure that any component of capital included in the ADI’s capital base satisfies, in both form and substance, all applicable requirements in this Prudential Standard for the particular category of capital in which it is included. An ADI must not incorporate a component of capital as part of its capital base where that component does not meet, or is inconsistent with, the requirements in this Prudential Standard.
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An ADI must not include a component of capital in a particular category of its capital base if that component, when considered in conjunction with other related transactions that affect its overall economic substance, could be reasonably considered not to satisfy fully the requirements in this Prudential Standard for components of that category of capital.
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An ADI must ensure that the category of capital in which an individual component of capital is included, when measured at an individual group member level (e.g. Level 1 or equivalent), is not upgraded to a higher category of capital when that component is captured in the measure of an ADI’s Level 2 capital base. Any such component of capital must be reclassified to the appropriate lower category of capital when measured at Level 2.
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An ADI must not assign a capital instrument to a particular category of capital, other than those covered by Attachment C, based on a future event, such as the future sale or issuance of a higher quality capital instrument, until such time as:
(a) the future event occurs;
(b) the future sale or conversion has irrevocably taken place; and
(c) the proceeds have been irrevocably received by the ADI.
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An ADI must provide APRA, as soon as practicable, with copies of documentation associated with the issue of all Tier 1 and Tier 2 capital instruments.
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Where the terms of an instrument depart from established precedent, an ADI must consult with APRA on the eligibility of a capital instrument for inclusion in the ADI’s capital base in advance of the issuance of the capital instrument, and provide APRA with all information it requires to assess the eligibility of the capital instrument.
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APRA may, in writing, require an ADI to:
(a) exclude from its capital base any component of capital that APRA has reasonable grounds to believe does not represent a genuine contribution to the financial strength of the ADI and the consolidated banking group, as appropriate; or
(b) reallocate to a lower category of capital a component of capital where APRA has reasonable grounds to believe that it does not fully satisfy the requirements of this Prudential Standard for the category to which it was originally allocated.