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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 required deductions from Level 1 and Level 2 capital must be undertaken prior to calculating any limits applied in paragraph 57.
The amounts of Tier 1 and Tier 2 capital included in an ADI’s capital base are subject to the following limits:
(a) Tier 1 capital
(i) On and after 1 January 2008:
(A) Fundamental Tier 1 capital must constitute at least 75 per cent of net Tier 1 capital, (the sum of Fundamental Tier 1 and Residual Tier 1 capital less Tier 1 deductions[22]). This requirement does not apply to mutually owned ADIs in their formative years of operation, where approved in writing by APRA.
(B) Residual Tier 1 capital is limited to 25 per cent of net Tier 1 capital. Any excess amount is counted as Upper Tier 2 capital.
(C) Innovative Tier 1 capital is limited to 15 per cent of net Tier 1 capital, except for ADIs that are subject to APRA-approved transition arrangements. Any excess amount is counted as Upper Tier 2 capital.
(ii) Net Tier 1 capital must constitute at least 50 per cent of an ADI’s required capital base. This requirement does not apply to mutually- owned ADIs in their formative years of operation, where approved in writing by APRA.
(b) Tier 2 capital
(i) Total Tier 2 capital (net of all specified deductions and amortisation) is limited to a maximum of 100 per cent of an ADI’s net Tier 1 capital. This requirement does not apply to mutually owned ADIs in their formative years of operation, where approved by APRA.
(ii) Total Lower Tier 2 capital net of all specified deductions and amortisation is limited to a maximum of 50 per cent of an ADI’s net Tier 1 capital. This requirement does not apply to mutually owned ADIs in their formative years of operation, as approved by APRA.