Annex # 2: Criteria for Classification as Common Shares for Regulatory Capital Purposes
Effective from 2012-12-19 - Dec 18 2012
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| 1. | Represents the most subordinated claim in liquidation of the bank. | ||
| 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). | ||
| 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). | ||
| 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. | ||
| 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). | ||
| 6. | There are no circumstances under which the distributions are obligatory. Non-payment is therefore not an event of default. | ||
| 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. | ||
| 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. | |||
| (Refer to Paragraphs 52: Basel III: A global regulatory framework for more resilient banks and banking systems - revised version (rev June 2011) | |||
| 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. | ||
| 9. | The paid in amount is recognized as equity capital (ie not recognized as a liability) for determining balance sheet insolvency. | ||
| 10. | The paid in amount is classified as equity under the relevant accounting standards. | ||
| 11. | It is directly issued and paid-in and the bank can not directly or indirectly have funded the purchase of the instrument. | ||
| 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)1 or subject to any other arrangement that legally or economically enhances the seniority of the claim. | ||
| 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 authorized by the owners. | ||
| 14. | It is clearly and separately disclosed on the bank’s balance sheet. | ||