The TFC capital requirementThe TFC capital requirement

The TFC capital requirement

1. An ADI must calculate the TFC capital requirement using one of the following methods:
   1. the standard method described in Attachment B, under which the TFC capital requirement is the sum of the market risk charges calculated in accordance with that method;
   2. the internal model approach described in Attachment C, under which the TFC capital requirement is the measure of market risk derived from applying that approach; or
   3. a combination of the standard method and the internal model approach, in which case the TFC capital requirement is the sum of the market risk capital requirements determined under the two methodologies.
2. Unless required to do otherwise by APRA (and subject to the conditions in paragraph 2 of Attachment B and paragraph 6 of Attachment C being satisfied):
   1. an ADI that has market-related activities in Australia and offshore branches (offshore Level 1 sites) and manages those market-related activities centrally may calculate its Level 1 TFC capital requirement allowing for netting and offsetting of short and long positions in exactly the same instrument that have been taken within the ADI, whether in Australia or an offshore Level 1 site; and
   2. an ADI that has market-related activities in Australia and either offshore branches or offshore subsidiaries (offshore Level 2 sites), and manages those market-related activities centrally may calculate its Level 2 TFC capital requirement allowing for netting and offsetting of short and long positions in exactly the same instrument that have been taken within the group, comprising the entities in Australia and the offshore Level 2 sites.

In each case the ADI may do so regardless of where the positions are booked (refer to paragraph 2 of Attachment B) and, if using the internal model approach, allowing for risk diversification between positions (refer to paragraph 6 of Attachment C).