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Banking (prudential standard) determination No. 4 of 2007 - Prudential Standard APS 111 - Capital Adequacy: Measurement of Capital
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Turn the raw legal text into a practical explanation grounded in Banking (prudential standard) determination No. 4 of 2007 - Prudential Standard APS 111 - Capital Adequacy: Measurement of Capital.
All amounts of assets corresponding to deductions from capital made at Level 1 and Level 2 must be excluded from total assets when calculating an ADI’s total risk-weighted assets at the respective level (under APS 112 and APS 113). Notwithstanding that the changes in value of some hedges may be deducted from capital, the credit risk on these hedges must continue to be included in total risk-weighted assets in accordance with Attachment G of APS 112.
An ADI that does not hold sufficient capital to absorb required deductions from Tier 2 capital must deduct an amount equivalent to the shortfall in its Tier 2 capital from its Tier 1 capital.