Document ID: chunk:federal_register_of_legislation:F2022L01562:body:0:p23
Version: federal_register_of_legislation:F2022L01562
Segment Type: other
Provision Reference: 
Character Range: 59400–62442

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 assets in accordance with Attachment G to APS 112.
7.             For the purposes of deducting from the relevant category of Regulatory Capital:
(a)          equity exposures and other capital support, and holdings of own capital instruments;
(b)          Additional Tier 1 Capital and Tier 2 Capital exposures;
(c)          securitisation exposures; and
(d)          any other exposures required to be deducted under this and other Prudential Standards,
an ADI may net any provisions held against the relevant defaulted exposures or holdings, or the relevant non-defaulted exposures or holdings that represent identified losses, before making the necessary deductions from the relevant category of Regulatory Capital.
8.             An ADI must not recognise, for the purpose of measuring its capital adequacy, any transactions (or dealings) which have the aim of offsetting required deductions.

Equity exposures and other capital support provided to financial institutions[16]
9.             Unless otherwise indicated, an ADI must deduct from the corresponding category of its Regulatory Capital equity exposures[17], guarantees and other capital support, and holdings of Additional Tier 1 Capital and Tier 2 Capital instruments in ADIs and overseas deposit-taking institutions and their subsidiaries, insurance companies and other financial institutions. This includes:
(a)          equity exposures, guarantees and other capital support, and holdings of Additional Tier 1 Capital and Tier 2 Capital instruments, held in the banking book;
(b)          net long positions[18] in equity held in the trading book (refer to Prudential Standard APS 116 Market Risk (APS 116)); and
(c)          underwriting positions in equity held for more than five working days.
An ADI is not required to deduct:
(d)          equity exposures in ADIs and equivalent overseas deposit-taking institutions[19] and their subsidiaries, insurance companies and other financial institutions held under a legal agreement on behalf of a third party, even if held in the name of the ADI (or other members of the Level 2 group), where the third party derives exclusively and irrevocably all the gains and losses of such exposures and investments;
(e)          underwriting positions in equities held for five business days or less. Such exposures must be risk-weighted at 250 per cent if listed and at 400 per cent if unlisted; and
(f)           at Level 1, equity exposures held in other ADIs or overseas deposit-taking institutions and their subsidiaries, and insurance companies that are subsidiaries of the ADI, up to a maximum of 10 per cent of the ADI's Common Equity Tier 1 Capital for each exposure. Such exposures, after deduction of any intangibles component, must be risk-weighted at 250 per cent.