Refer Page 7 & 8 of Section A – Finalized guidance document concerning the implementation of Basel III, 2.2 Details on Components of Regulatory Capital, 2.2.1 Common Equity Tier 1
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The original paragraphs were as follows
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| 2.2.1 | Common Equity Tier 1
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Common Equity Tier 1 capital consists of the sum of the following elements:
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| • | Common shares issued by the bank that meet the criteria for classification as common shares for regulatory purposes (or the equivalent for non-joint stock companies);
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| • | Stock surplus (share premium) resulting from the issue of instruments included Common Equity Tier 1;
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| • | Retained earnings;
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| • | Accumulated other comprehensive income and other disclosed reserves;
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| • | Common shares issued by consolidated subsidiaries of the bank and held by third parties (i.e. minority interest) that meet the criteria for inclusion in Common Equity Tier 1 capital.
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| • | Retained earnings and other comprehensive income include interim profit or loss.
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| • | Dividends are removed from Common Equity Tier 1 in accordance with applicable accounting standards. The treatment of minority interest and the regulatory adjustments applied in the calculation of Common Equity Tier 1 are addressed in separate sections.
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Common shares issued by the bank
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For an instrument to be included in Common Equity Tier 1 capital it must meet all of the criteria that an outlined in Annex- 2. The vast majority of internationally active banks are structured as joint stock companies and for these banks the criteria must be met solely with common shares.
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In the rare cases where banks need to issue non-voting common shares as part of Common Equity Tier 1, they must be identical to voting common shares of the issuing bank in all respects except the absence of voting rights.
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| • | Common shares issued by consolidated subsidiaries are described in section 3 of this document.
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Regulatory adjustments applied in the calculation of Common Equity Tier 1 are described in section 4 of this document.
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| • | Common shares issued by consolidated subsidiaries are described in section 3 of this document.
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The following content has been added against certain assertions in the original paragraph above, these are highlighted in bold font – the rest of the original content remains “as is”:
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| 2.2.1 | Common Equity Tier 1
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| • | Accumulated other comprehensive income and other disclosed reserves; (There is no adjustment applied to remove from Common Equity Tier 1 unrealised gains or losses recognized on the balance sheet. Unrealised losses are subject to the transitional arrangements set out in paragraph 94 (c) and (d) Basel III: A global regulatory framework for more resilient banks and banking systems, 2011).
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Common shares issued by the bank
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For an instrument to be included in Common Equity Tier 1 capital it must meet all of the criteria that an outlined in Annex- 2. The vast majority of internationally active banks are structured as joint stock companies (Joint stock companies are defined as companies that have issued common shares, irrespective of whether these shares are held privately or publically. These will represent the vast majority of internationally active banks)and for these banks the criteria must be met solely with common shares.
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(Refer to Paragraphs 53: Basel III: A global regulatory framework for more resilient banks and banking systems - revised version (rev June 2011)
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| Refer Page 77 Section A – Finalized guidance document concerning the implementation of Basel III, Annex 2, Criteria for Classification as Common Shares for Regulatory Capital purposes |
The original heading was as follows
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Annex-2 Criteria for Classification as Common Shares for Regulatory Capital purposes
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The revised heading would be accompanied by a foot note
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Annex-2 Criteria for Classification as Common Shares for Regulatory Capital purposesa
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Footnote a: The criteria also apply to non joint stock companies, such as mutuals, cooperatives or savings institutions, taking into account their specific constitution and legal structure. The application of the criteria should preserve the quality of the instruments by requiring that they are deemed fully equivalent to common shares in terms of their capital quality as regards loss absorption and do not possess features which could cause the condition of the bank to be weakened as a going concern during periods of market stress. Supervisors will exchange information on how they apply the criteria to non joint stock companies in order to ensure consistent implementation.
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(Refer to Paragraphs 52: Basel III: A global regulatory framework for more resilient banks and banking systems - revised version (rev June 2011)
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Refer Page 77 Section A – Finalized guidance document concerning the implementation of Basel III, Annex 2, Criteria for Classification as Common Shares for Regulatory Capital purposes
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The original paragraph was as follows:
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| 1. | Represents the most subordinated claim in liquidation of the bank.
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| 2. | Entitled to a claim on the residual assets that is proportional with its share of issued capital, after all senior claims have been repaid in liquidation (ie has an unlimited and variable claim, not a fixed or capped claim).
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| 3. | Principal is perpetual and never repaid outside of liquidation (setting aside discretionary repurchases or other means of effectively reducing capital in a discretionary manner that is allowable under relevant law).
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| 4. | The bank does nothing to create an expectation at issuance that the instrument will be bought back, redeemed or cancelled nor do the statutory or contractual terms provide any feature which might give rise to such an expectation.
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| 5. | Distributions are paid out of distributable items (retained earnings included). The level of distributions is not in any way tied or linked to the amount paid in at issuance and is not subject to a contractual cap (except to the extent that a bank is unable to pay distributions that exceed the level of distributable items).
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| 6. | There are no circumstances under which the distributions are obligatory. Non payment is therefore not an event of default.
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| 7. | Distributions are paid only after all legal and contractual obligations have been met and payments on more senior capital instruments have been made. This means that there are no preferential distributions, including in respect of other elements classified as the highest quality issued capital.
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| 8. | It is the issued capital that takes the first and proportionately greatest share of any losses as they occur. Within the highest quality capital, each instrument absorbs losses on a going concern basis proportionately and pari passu with all the others.
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| 9. | The paid in amount is recognised as equity capital (ie not recognised as a liability) for determining balance sheet insolvency.
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| 10. | The paid in amount is classified as equity under the relevant accounting standards.
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| 11. | It is directly issued and paid-in and the bank can not directly or indirectly have funded the purchase of the instrument.
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| 12. | The paid in amount is neither secured nor covered by a guarantee of the issuer or related entity or subject to any other arrangement that legally or economically enhances the seniority of the claim.
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| 13. | It is only issued with the approval of the owners of the issuing bank, either given directly by the owners or, if permitted by applicable law, given by the Board of Directors or by other persons duly authorised by the owners.
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| 14. | It is clearly and separately disclosed on the bank‘s balance sheet.
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The following content has been added against certain assertions in the original paragraph above, these are highlighted in bold font – the rest of the original content remains “as is”:
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| 8. | It is the issued capital that takes the first and proportionately greatest share of any losses as they occur (In cases where capital instruments have a permanent write-down feature, this criterion is still deemed to be met by common shares.). Within the highest quality capital, each instrument absorbs losses on a going concern basis proportionately and pari passu with all the others.
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| 12. | The paid in amount is neither secured nor covered by a guarantee of the issuer or related entity (A related entity can include a parent company, a sister company, a subsidiary or any other affiliate. A holding company is a related entity irrespective of whether it forms part of the consolidated banking group.) or subject to any other arrangement that legally or economically enhances the seniority of the claim.
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(Refer to 54-56, Tier 2 capital, Basel III: A global regulatory framework for more resilient banks and banking systems - revised version (rev June 2011)
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Refer Page 7 & 8 of Section A – Finalized guidance document concerning the implementation of Basel III, 2.2 Details on Components of Regulatory Capital, Common shares issued by the bank
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Original paragraph was as follows:
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| 2.2.2. | Additional Tier 1 capital
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| • | A minimum set of criteria for an instrument issued by the bank to meet or to exceed in order for its to be included in additional Tier-1 Capital and described in Annex # 3.
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Additional Tier 1 capital consists of the sum of the following elements:
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| • | Instruments issued by the bank that meet the criteria for inclusion in Additional Tier 1 capital (and are not included in Common Equity Tier 1);
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| • | Stock surplus (share premium) resulting from the issue of instruments included in Additional Tier 1 capital;
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| • | Instruments issued by consolidated subsidiaries of the bank and held by third parties that meet the criteria for inclusion in Additional Tier 1 capital and are not included in Common Equity Tier 1. Refer to Annex # 3 for the relevant criteria; and
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| • | Regulatory adjustments applied in the calculation of Additional Tier 1 Capital are addressed in section 4 of this document.
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| • | Tier-1 Capital instruments issued by consolidated subsidiaries are described in section 3 of this document.
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The following content has been added against certain assertions in the original paragraph above, these are highlighted in bold font – the rest of the original content remains “as is”:
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| • | Instruments issued by consolidated subsidiaries of the bank and held by third parties that meet the criteria for inclusion in Additional Tier 1 capital and are not included in Common Equity Tier 1. Refer to Section 3 for the relevant criteria; and
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Refer to Paragraph 54, Additional Tier 1 capital, A global regulatory framework for more resilient banks and banking systems - revised version (rev June 2011)
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Refer Page 78 Section A – Finalized guidance document concerning the implementation of Basel III, Annex 3, Instruments issued by the bank that meet the Additional Tier 1 criteria
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The original content was as follows:
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Criteria for inclusion in Additional Tier 1 capital
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| 1. | Issued and paid-in
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| 2. | Subordinated to depositors, general creditors and subordinated debt of the bank
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| 3. | Is neither secured nor covered by a guarantee of the issuer or related entity or other arrangement that legally or economically enhances the seniority of the claim vis-à-vis bank creditors
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| 4. | Is perpetual, ie there is no maturity date and there are no step-ups or other incentives to redeem
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| 5. | May be callable at the initiative of the issuer only after a minimum of five years
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| a. | To exercise a call option a bank must receive prior supervisory approval; and
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| b. | A bank must not do anything which creates an expectation that the call will be exercised; and
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| c. | Banks must not exercise a call unless:
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| i. | They replace the called instrument with capital of the same or better quality and the replacement of this capital is done at conditions which are sustainable for the income capacity of the bank15; or
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| ii. | The bank demonstrates that its capital position is well above the minimum capital requirements after the call option is exercised.16
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| 6. | Any repayment of principal (eg through repurchase or redemption) must be with prior supervisory approval and banks should not assume or create market expectations that supervisory approval will be given
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| 7. | Dividend/coupon discretion:
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| a. | the bank must have full discretion at all times to cancel distributions/payments17
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| b. | cancellation of discretionary payments must not be an event of default
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| c. | banks must have full access to cancelled payments to meet obligations as they fall due
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| d. | cancellation of distributions/payments must not impose restrictions on the bank except in relation to distributions to common stockholders.
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| 8. | Dividends/coupons must be paid out of distributable items
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| 9. | The instrument cannot have a credit sensitive dividend feature, that is a dividend/coupon that is reset periodically based in whole or in part on the banking organisation‘s credit standing.
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| 10. | The instrument cannot contribute to liabilities exceeding assets if such a balance sheet test forms part of national insolvency law.
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| 11. | Instruments classified as liabilities for accounting purposes must have principal loss absorption through either (i) conversion to common shares at an objective pre-specified trigger point or (ii) a write-down mechanism which allocates losses to the instrument at a pre-specified trigger point. The write-down will have the following effects:
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| a. | Reduce the claim of the instrument in liquidation;
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| b. | Reduce the amount re-paid when a call is exercised; and
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| c. | Partially or fully reduce coupon/dividend payments on the instrument.
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| 12. | Neither the bank nor a related party over which the bank exercises control or significant influence can have purchased the instrument, nor can the bank directly or indirectly have funded the purchase of the instrument
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| 13. | The instrument cannot have any features that hinder recapitalisation, such as provisions that require the issuer to compensate investors if a new instrument is issued at a lower price during a specified time frame
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| 14. | If the instrument is not issued out of an operating entity or the holding company in the consolidated group (eg a special purpose vehicle – "SPV"), proceeds must be immediately available without limitation to an operating entity18 or the holding company in the consolidated group in a form which meets or exceeds all of the other criteria for inclusion in Additional Tier 1 capital
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Stock surplus (share premium) resulting from the issue of instruments included in Additional Tier 1 capital;
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Stock surplus (ie share premium) that is not eligible for inclusion in Common Equity Tier 1, will only be permitted to be included in Additional Tier 1 capital if the shares giving rise to the stock surplus are permitted to be included in Additional Tier 1 capital.
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The following content has been added against certain assertions in the original paragraph above, these are highlighted in bold font – the rest of the original content remains “as is”:
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| 5. | May be callable at the initiative of the issuer only after a minimum of five years:
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| a. | To exercise a call option a bank must receive prior supervisory approval; and
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| b. | A bank must not do anything which creates an expectation that the call will be exercised; and
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| c. | Banks must not exercise a call unless:
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| i. | They replace the called instrument with capital of the same or better quality and the replacement of this capital is done at conditions which are sustainable for the income capacity of the bank (Replacement issues can be concurrent with but not after the instrument is called); or
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| ii. | The bank demonstrates that its capital position is well above the minimum capital requirements after the call option is exercised. (Minimum refers to the regulator’s prescribed minimum requirement, which may be higher than the Basel III Pillar 1 minimum requirement.)16
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| 7. | Dividend/coupon discretion:
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| a. | the bank must have full discretion at all times to cancel distributions/payments (A consequence of full discretion at all times to cancel distributions/payments is that “dividend pushers” are prohibited. An instrument with a dividend pusher obliges the issuing bank to make a dividend/coupon payment on the instrument if it has made a payment on another (typically more junior) capital instrument or share. This obligation is inconsistent with the requirement for full discretion at all times. Furthermore, the term “cancel distributions/payments” means extinguish these payments. It does not permit features that require the bank to make distributions/payments in kind.)17
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| 14. | If the instrument is not issued out of an operating entity or the holding company in the consolidated group (eg a special purpose vehicle – "SPV"), proceeds must be immediately available without limitation to an operating entity (An operating entity is an entity set up to conduct business with clients with the intention of earning a profit in its own right.) or the holding company in the consolidated group in a form which meets or exceeds all of the other criteria for inclusion in Additional Tier 1 capital
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Refer to Paragraph 54-56, A global regulatory framework for more resilient banks and banking systems - revised version (rev June 2011)
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Refer Page 80 Section A – Finalized guidance document concerning the implementation of Basel III, Annex 4, Instruments issued by the bank that meet the Tier 2 criteria
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The original content was as follows
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Annex-4
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Criteria for inclusion in Tier 2 Capital
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| 1. | Issued and paid-in
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| 2. | Subordinated to depositors and general creditors of the bank
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| 3. | Is neither secured nor covered by a guarantee of the issuer or related entity or other arrangement that legally or economically enhances the seniority of the claim vis-à-vis depositors and general bank creditors
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| 4. | Maturity:
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| a. | minimum original maturity of at least five years
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| b. | recognition in regulatory capital in the remaining five years before maturity will be amortized on a straight line basis
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| c. | there are no step-ups or other incentives to redeem
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| 5. | May be callable at the initiative of the issuer only after a minimum of five years:
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| a. | To exercise a call option a bank must receive prior supervisory approval;
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| b. | A bank must not do anything that creates an expectation that the call will be exercised; and
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| c. | Banks must not exercise a call unless:
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| i. | They replace the called instrument with capital of the same or better quality and the replacement of this capital is done at conditions which are sustainable for the income capacity of the bank; or
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| ii. | The bank demonstrates that its capital position is well above the minimum capital requirements after the call option is exercised
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| 6. | The investor must have no rights to accelerate the repayment of future scheduled payments (coupon or principal), except in bankruptcy and liquidation.
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| 7. | The instrument cannot have a credit sensitive dividend feature, that is a dividend/coupon that is reset periodically based in whole or in part on the banking organisation‗s credit standing.
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| 8. | Neither the bank nor a related party over which the bank exercises control or significant influence can have purchased the instrument, nor can the bank directly or indirectly have funded the purchase of the instrument.
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| 9. | If the instrument is not issued out of an operating entity or the holding company in the consolidated group (eg a special purpose vehicle – "SPV"), proceeds must be immediately available without limitation to an operating entity or the holding company in the consolidated group in a form which meets or exceeds all of the other criteria for inclusion in Tier 2 Capital.
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Stock surplus (ie share premium) that is not eligible for inclusion in Tier 1, will only be permitted to be included in Tier 2 capital if the shares giving rise to the stock surplus are permitted to be included in Tier 2 capital.
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General provisions/general loan-loss reserves (for banks using the Standardised Approach for credit risk)
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The following content has been added against certain assertions in the original paragraph above, these are highlighted in bold font – the rest of the original content remains “as is”:
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Annex-4
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Criteria for inclusion in Tier 2 Capital
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| 5. | May be callable at the initiative of the issuer only after a minimum of five years:
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| a. | To exercise a call option a bank must receive prior supervisory approval;
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| b. | A bank must not do anything that creates an expectation that the call will be exercised; (An option to call the instrument after five years but prior to the start of the amortisation period will not be viewed as an incentive to redeem as long as the bank does not do anything that creates an expectation that the call will be exercised at this point.) and
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| c. | Banks must not exercise a call unless:
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| i. | They replace the called instrument with capital of the same or better quality and the replacement of this capital is done at conditions which are sustainable for the income capacity of the bank; (Replacement issues can be concurrent with but not after the instrument is called.) or
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| ii. | The bank demonstrates that its capital position is well above the minimum capital requirements after the call option is exercised (Minimum refers to the regulator’s prescribed minimum requirement, which may be higher than the Basel III Pillar 1 minimum requirement.)
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| 9. | If the instrument is not issued out of an operating entity or the holding company in the consolidated group (eg a special purpose vehicle – "SPV"), proceeds must be immediately available without limitation to an operating entity (An operating entity is an entity set up to conduct business with clients with the intention of earning a profit in its own right) or the holding company in the consolidated group in a form which meets or exceeds all of the other criteria for inclusion in Tier 2 Capital.
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(Refer paragraph 57-59, A global regulatory framework for more resilient banks and banking systems - revised version (rev June 2011)
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Refer Page 80 Section A – Finalized guidance document concerning the implementation of Basel III, Minority interest (i.e. non-controlling interest) and other capital issued out of consolidated subsidiaries that is held by third parties
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The original content was as follows:
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| 3.1 | Common shares issued by consolidated subsidiaries
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Minority interest arising from the issue of common shares by a fully consolidated subsidiary of the bank may receive recognition in Common Equity Tier 1 only if:
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| (1) | the instrument giving rise to the minority interest would, if issued by the bank, meet all of the criteria for classification as common shares for regulatory capital purposes; and
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| (2) | the subsidiary that issued the instrument is itself a bank. The amount of minority interest meeting the criteria above that will be recognized in consolidated Common Equity Tier 1 will be calculated as follows:
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| • | Total minority interest meeting the two criteria above minus the amount of the surplus Common Equity Tier 1 of the subsidiary attributable to the minority shareholders.
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| • | Surplus Common Equity Tier 1 of the subsidiary is calculated as the Common Equity Tier 1 of the subsidiary minus the lower of: (1) the minimum Common Equity Tier 1 requirement of the subsidiary plus the capital conservation buffer (ie 7.0% of risk weighted assets) and (2) the portion of the consolidated minimum Common Equity Tier 1 requirement plus the capital conservation buffer (ie 7.0% of consolidated risk weighted assets) that relates to the subsidiary.
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| • | The amount of the surplus Common Equity Tier 1 that is attributable to the minority shareholders is calculated by multiplying the surplus Common Equity Tier 1 by the percentage of Common Equity Tier 1 that is held by minority shareholders.
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The following content has been added against certain assertions in the original paragraph above, these are highlighted in bold font – the rest of the original content remains “as is”:
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| 3.1 | Common shares issued by consolidated subsidiaries
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| (2) | the subsidiary that issued the instrument is itself a bank (For the purposes of this paragraph, any institution that is subject to the same minimum prudential standards and level of supervision as a bank may be considered to be a bank.) & (Minority interest in a subsidiary that is a bank is strictly excluded from the parent bank’s common equity if the parent bank or affiliate has entered into any arrangements to fund directly or indirectly minority investment in the subsidiary whether through an SPV or through another vehicle or arrangement. The treatment outlined above, thus, is strictly available where all minority investments in the bank subsidiary solely represent genuine third party common equity contributions to the subsidiary). The amount of minority interest meeting the criteria above that will be recognized in consolidated Common Equity Tier 1 will be calculated as follows:
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| • | Total minority interest meeting the two criteria above minus the amount of the surplus Common Equity Tier 1 of the subsidiary attributable to the minority shareholders.
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| • | Surplus Common Equity Tier 1 of the subsidiary is calculated as the Common Equity Tier 1 of the subsidiary minus the lower of: (1) the minimum Common Equity Tier 1 requirement of the subsidiary plus the capital conservation buffer (ie 7.0% of risk weighted assets) and (2) the portion of the consolidated minimum Common Equity Tier 1 requirement plus the capital conservation buffer (ie 7.0% of consolidated risk weighted assets) that relates to the subsidiary.
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| • | The amount of the surplus Common Equity Tier 1 that is attributable to the minority shareholders is calculated by multiplying the surplus Common Equity Tier 1 by the percentage of Common Equity Tier 1 that is held by minority shareholders.
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(Refer paragraph 62, A global regulatory framework for more resilient banks and banking systems - revised version (rev June 2011)
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Refer Page 11 Section A – Finalized guidance document concerning the implementation of Basel III, 3.3 Tier 1 and Tier 2 qualifying capital issued by consolidated subsidiaries
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The original paragraph was as follows:
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| 3.3 | Tier 1 and Tier 2 qualifying capital issued by consolidated subsidiaries
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Total capital instruments (ie Tier 1 and Tier 2 capital instruments) issued by a fully consolidated subsidiary of the bank to third party investors (including amounts under paragraph 3.1 and 3.2) may receive recognition in Total Capital only if the instruments would, if issued by the bank, meet all of the criteria for classification as Tier 1 or Tier 2 capital. The amount of this capital that will be recognized in consolidated Total Capital will be calculated as follows:
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| • | Total capital instruments of the subsidiary issued to third parties minus the amount of the surplus Total Capital of the subsidiary attributable to the third party investors.
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| • | Surplus Total Capital of the subsidiary is calculated as the Total Capital of the subsidiary minus the lower of: (1) the minimum Total Capital requirement of the subsidiary plus the capital conservation buffer (ie 10.5% of risk weighted assets) and (2) the portion of the consolidated minimum Total Capital requirement plus the capital conservation buffer (ie 10.5% of consolidated risk weighted assets) that relates to the subsidiary.
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| • | The amount of the surplus Total Capital that is attributable to the third party investors is calculated by multiplying the surplus Total Capital by the percentage of Total Capital that is held by third party investors.
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The amount of this Total Capital that will be recognized in Tier 2 will exclude amounts recognized in Common Equity Tier 1 under paragraph 3.1 and amounts recognized in Additional Tier 1 under paragraph 3.3.
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Where capital has been issued to third parties out of a special purpose vehicle (SPV), none of this capital can be included in Common Equity Tier 1. However, such capital can be included in consolidated Additional Tier 1 or Tier 2 and treated as if the bank itself had issued the capital directly to the third parties only if it meets all the relevant entry criteria and the only asset of the SPV is its investment in the capital of the bank in a form that meets or exceeds all the relevant entry criteria (as required by criterion 14 for Additional Tier 1 and criterion 9 for Tier 2). In cases where the capital has been issued to third parties through an SPV via a fully consolidated subsidiary of the bank, such capital may, subject to the requirements of this paragraph, be treated as if the subsidiary itself had issued it directly to the third parties and may be included in the banks consolidated Additional Tier 1 or Tier 2 in accordance with the treatment outlined in paragraphs 63 and 64 of the BCBS document of June 2011.
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The following content has been amended in the original paragraph above, these are highlighted in bold font – the rest of the original content remains “as is”:
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| • | The amount of the surplus Total Capital that is attributable to the third party investors is calculated by multiplying the surplus Total Capital by the percentage of Total Capital that is held by third party investors.
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The amount of this Total Capital that will be recognized in Tier 2 will exclude amounts recognized in Common Equity Tier 1 under paragraph 3.1 and amounts recognized in Additional Tier 1 under paragraph 3.2.
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Paragraphs 64-65: A global regulatory framework for more resilient banks and banking systems - revised version (rev June 2011)
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Refer, Page 13 of Section A – Finalized guidance document concerning the implementation of Basel III, Cumulative gains and losses due to changes in own credit risk on fair valued financial liabilities
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The original paragraph was as follows:
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Cumulative gains and losses due to changes in own credit risk on fair valued financial liabilities
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Derecognize in the calculation of Common Equity Tier 1, all unrealized gains and losses that have resulted from changes in the fair value of liabilities that are due to changes in the bank's own credit risk.
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The revised paragraph would read as follows
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Derecognize in the calculation of Common Equity Tier 1, all unrealized gains and losses that have resulted from changes in the fair value of liabilities that are due to changes in the bank's own credit risk.
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In addition, with regard to derivative liabilities, derecognise all accounting valuation adjustments arising from the bank's own credit risk. The offsetting between valuation adjustments arising from the bank's own credit risk and those arising from its counterparties' credit risk is not allowed. "
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(BIS has issued its final guidelines (July 2012) titled "Regulatory treatment of valuation adjustments to derivative liabilities - final rule issued by the Basel Committee". Banks are advised to refer to the aforementioned, these would be regarded as binding by SAMA with respect to capital computation / capital adequacy under Basel III guidelines and consider these as binding.)
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Refer to Paragraph 75, Cumulative gains and losses due to changes in own credit risk on fair valued financial liabilities (Updated in July 2012)
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Page 18 of Section A – Finalized guidance document concerning the implementation of Basel III, 4.4 Threshold Deduction
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The original paragraph was as follows:
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| 4.4 | Threshold deductions
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Instead of a full deduction, the following items may each receive limited recognition when calculating Common Equity Tier 1, with recognition capped at 10% of the bank's common equity (after the application of all regulatory adjustments set out in paragraphs 4.1.1 to 4.3):
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| • | Significant investments in the common shares of unconsolidated financial institutions (banks, insurance and other financial entities) as referred to in paragraph 84;
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| • | Mortgage servicing rights (MSRs); and
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| • | DTAs that arise from temporary differences.
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On 1 January 2013, a bank must deduct the amount by which the aggregate of the three items above exceeds 15% of its common equity component of Tier 1 (calculated prior to the deduction of these items but after application of all other regulatory adjustments applied in the calculation of Common Equity Tier 1). The items included in the 15% aggregate limit are subject to full disclosure. As of 1 January 2018, the calculation of the 15% limit will be subject to the following treatment: the amount of the three items that remains recognized after the application of all regulatory adjustments must not exceed 15% of the Common Equity Tier 1 capital, calculated after all regulatory adjustments. See Annex 2 for an example.
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The amount of the three items that are not deducted in the calculation of Common Equity Tier 1 will be risk weighted at 250%. (Refer to Prudential Return)
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The following content has been amended in the original paragraph above, these are highlighted in bold font – the rest of the original content remains “as is”:
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Instead of a full deduction, the following items may each receive limited recognition when calculating Common Equity Tier 1, with recognition capped at 10% of the bank's common equity (after the application of all regulatory adjustments set out in paragraphs 4.1.1 to 4.3):
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| • | Significant investments in the common shares of unconsolidated financial institutions (banks, insurance and other financial entities) as referred to in section 4.3 of this document;
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Refer to Paragraph 87-89, A global regulatory framework for more resilient banks and banking systems - revised version (rev June 2011)
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Page 73 of Section A – Finalized guidance document concerning the implementation of Basel III, Disclosure requirements
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Disclosure requirements
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The original paragraph was as follows:
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| 91. | To help improve transparency of regulatory capital and improve market discipline, banks are required to disclose the following:
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| • | a full reconciliation of all regulatory capital elements back to the balance sheet in the audited financial statements;
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| • | separate disclosure of all regulatory adjustments and the items not deducted from Common Equity Tier 1 according to paragraphs 87 and 88;
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| • | a description of all limits and minima, identifying the positive and negative elements of capital to which the limits and minima apply;
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| • | a description of the main features of capital instruments issued;
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banks which disclose ratios involving components of regulatory capital (eg "Equity Tier 1, "Core Tier 1 or "Tangible Common Equity ratios) must accompany such disclosures with a comprehensive explanation of how these ratios are calculated.
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| 92. | Banks are also required to make available on their websites the full terms and conditions of all instruments included in regulatory capital. The Basel Committee will issue more detailed Pillar 3 disclosure requirements in 2011.
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| 93. | During the transition phase banks are required to disclose the specific components of capital, including capital instruments and regulatory adjustments that are benefiting from the transitional provisions
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The following content has been amended in the original paragraph above, these are highlighted in bold font – the rest of the original content remains “as is”:
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| 91. | To help improve transparency of regulatory capital and improve market discipline, banks are required to disclose the following:
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| • | a full reconciliation of all regulatory capital elements back to the balance sheet in the audited financial statements;
|
| • | separate disclosure of all regulatory adjustments and the items not deducted from Common Equity Tier 1 according to section 4.4. of this SAMA guideline;
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| • | a description of all limits and minima, identifying the positive and negative elements of capital to which the limits and minima apply;
|
| • | a description of the main features of capital instruments issued;
|
| • | banks which disclose ratios involving components of regulatory capital (eg "Equity Tier 1, "Core Tier 1 or "Tangible Common Equity ratios) must accompany such disclosures with a comprehensive explanation of how these ratios are calculated.
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(Refer to Paragraphs 91-93: A global regulatory framework for more resilient banks and banking systems - revised version (rev June 2011)
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