Document ID: chunk:federal_register_of_legislation:F2022L01562:body:0:p26
Version: federal_register_of_legislation:F2022L01562
Segment Type: other
Provision Reference: 
Character Range: 67452–70152

under Australian Accounting Standards from the relevant category of capital. This deduction must include any capital instruments that the ADI (or other members of the Level 2 group) could be contractually obliged to purchase, regardless of whether the holdings are recorded in the banking or trading book. An ADI must also deduct all of the unused portion of any trading limit agreed with APRA.
18.         Unless otherwise indicated, the gross long positions of own capital instruments may be deducted net of short positions in own capital instruments only if the short positions involve no counterparty risk. An ADI must look through holdings of index securities to determine exposures of own ordinary shares to be deducted.[23]
19.         For the purposes of this Prudential Standard, an ADI or member of a group headed by an ADI may, as a result of membership of a dealer panel, trading or other activities agreed with APRA, undertake limited purchases of its own Common Equity Tier 1 Capital instruments, Additional Tier 1 Capital instruments and Tier 2 Capital instruments or capital instruments issued by other members of the Level 2 group to which it belongs. Such purchases are subject to a limit as agreed with APRA, and the amount equal to the limit (or alternatively any actual holdings plus unused limit) must be deducted from Common Equity Tier 1 Capital, Additional Tier 1 Capital and Tier 2 Capital as appropriate, both at Level 1 and Level 2. This requirement does not apply to holdings of capital instruments by members of a group on behalf of third parties.

Regulatory adjustments to Common Equity Tier 1 Capital
20.         An ADI must make the following deductions to determine Common Equity Tier 1 Capital at both Level 1 and Level 2.

Asset impairment
21.         An ADI must deduct any identified impairment of an asset where the impairment has not already been taken into account in profit or loss.

Cash flow hedge reserve
22.         An ADI must eliminate the amount of the cash flow hedge reserve that relates to the hedging of items that are not recorded at fair value on the balance sheet (including projected cash flows).[24]

Covered bonds excess assets in cover pools
23.         An ADI must deduct the total value of assets in Australia held in cover pools securing the issue of covered bonds by the ADI that are in excess of eight per cent of the ADI's assets in Australia.

Deferred tax assets and deferred tax liabilities
24.         An ADI must deduct from its Common Equity Tier 1 Capital the net amount of its:
(a)          deferred tax assets; less
(b)          deferred tax liabilities.
An ADI must net these items on a consistent basis for the purposes of