Document ID: chunk:federal_register_of_legislation:F2023L00690:front:0:p4
Version: federal_register_of_legislation:F2023L00690
Segment Type: other
Provision Reference: 
Character Range: 8251–11352

assets and liabilities in the calculation of the deductions from Common Equity Tier 1 Capital in Prudential Standard GPS 112 Capital Adequacy: Measurement of Capital (GPS 112).

Assets and liabilities to be stressed
    15.         In determining each risk charge component, a regulated institution must include the effective exposure[1] of the regulated institution's assets and liabilities to each of the risks if the exposure is impacted by the stress test. Some assets and liabilities may have effective exposures to multiple risks.
    16.         Investment income receivables must be included with the asset that generated the income and then subject to the appropriate stress tests.
    17.         The following assets and liabilities must not be stressed:
       (a)          assets whose value must be deducted from the capital base (e.g. goodwill in subsidiaries) in GPS 112; and

       (b)          any part of assets in excess of the asset concentration limits specified in Prudential Standard GPS 117 Capital Adequacy: Asset Concentration Risk Charge.

    18.         In addition to paragraph 17, a regulated institution that is an employer-sponsor of a defined benefit superannuation fund does not need to reassess any deficit in the fund as a result of the seven stress tests, unless the regulated institution has provided a guarantee in relation to the benefits.

    19.         The stress tests must be applied to the fair value of each of the regulated institution's assets. A regulated institution may measure its non-financial assets, short term receivables and intercompany receivables and payables using the requirements in Australian Accounting Standards rather than fair value.[2]

    20.         For Category C insurers, the Asset Risk Charge must be applied to the assets in Australia only of the Category C insurer, consistent with reporting standards made under the Financial Sector (Collection of Data) Act 2001.

Off-balance sheet exposures
    21.         A regulated institution may be exposed to various asset risks through transactions or dealings other than those reflected on its balance sheet. Each of the stress tests must include any changes to the regulated institution's on-balance sheet assets and liabilities that would result from application of the stresses to the regulated institution's off-balance sheet exposures. A regulated institution must use effective exposure for any off-balance sheet exposures of the regulated institution. Detailed information on the treatment of off-balance sheet exposures is set out in Attachment A.

Collateral and guarantees
    22.         The impact of applying the asset risk stresses may be reduced where the regulated institution holds certain types of collateral against an asset, or where the asset has been guaranteed. Detailed information on the eligibility of collateral and guarantees is set out in Attachment B.

Treatment of specific asset classes
    23.         Hybrid assets such as convertible notes must be split into their interest-bearing and equity/option exposures. A regulated institution