Document ID: chunk:federal_register_of_legislation:F2022L01562:body:0:p22
Version: federal_register_of_legislation:F2022L01562
Segment Type: other
Provision Reference: 
Character Range: 56914–59657

the amount of Additional Tier 1 Capital is insufficient to cover the amount of deductions required to be made from this category of capital, the shortfall must be deducted from Common Equity Tier 1 Capital; and
(b)          where the amount of Tier 2 Capital is insufficient to cover the amount of deductions required to be made from this category of capital, the shortfall must be deducted from Additional Tier 1 Capital and, if Additional Tier 1 Capital is insufficient to cover the amount of the deductions required, the remaining amount must be deducted from Common Equity Tier 1 Capital.
3.             All equity exposures (refer to paragraph 10 of this Attachment) and other capital support (refer to paragraph 11 of this Attachment) provided to financial institutions, and holdings of own capital instruments must be deducted following the corresponding deduction approach i.e. the deduction is to be applied to the same category of capital for which the capital would qualify if issued by the ADI itself.[15] In the case of holdings of Total Loss Absorbing Capacity (TLAC) instruments (refer to paragraph 11 of this Attachment), the deduction is to be applied to the ADI's own Tier 2 Capital.
4.             Where a capital instrument is required to be deducted and it is not possible to determine whether it should be deducted from Common Equity Tier 1 Capital, Additional Tier 1 Capital or Tier 2 Capital, the deduction must be made from Common Equity Tier 1 Capital. An ADI must consult APRA if there is uncertainty about the category of capital against which a deduction must be made.
5.             An ADI that finds it operationally difficult to look through and monitor the exact exposure to equity and other capital instruments that it holds in institutions, including through holdings of indexed securities, may apply to APRA to use a proxy approach for determining the amount of exposures to deduct. APRA may allow an ADI to apply an annual estimate of the amount to be deducted where the ADI can demonstrate that it can obtain details, at least annually, of the proportion of exposures to financial and commercial institutions (such as an indexed security) comprised of equity and other exposures of a capital nature. Where an ADI cannot meet this requirement, it must deduct the full value of its indirect exposures from Common Equity Tier 1 Capital.
6.             All amounts of assets corresponding to deductions from capital made at Level 1 and Level 2 must be excluded when calculating an ADI's total risk-weighted assets at the respective level. Notwithstanding that the changes in value of some hedges may be deducted from capital, the credit risk of these hedges must continue to be included in total risk-weighted