APRA Specifies Capital Treatment of Equity Investments in ABGF
APRA published a letter to the authorized deposit-taking institutions outlining the regulatory capital treatment of their equity investments in the Australian Business Growth Fund (ABGF). APRA is adjusting its capital framework for authorized deposit-taking institutions to support the establishment of the ABGF. The ABGF is a joint initiative between the Australian government and financial investors to provide longer term equity funding to small and medium-size enterprises (SMEs). APRA supports the establishment of the fund as an initiative to enhance financing options for SMEs.
An authorized deposit-taking institution that invests in the ABGF will be able to apply a risk-weight of 250% to their investment. This compares to the current capital treatment of a full deduction from common equity tier 1 (CET1) capital for these investments. The inclusion of the Australian government as a founding shareholder in the ABGF supports APRA providing a special treatment, subject to prudential safeguards, for this investment compared to other equity investments.
To ensure that risks, to authorized deposit-taking institutions, of investing in the ABGF are contained, an authorized deposit-taking institution will only be able to invest up to 2% of its Level 1 CET1 Capital in the ABGF. Any additional equity investment beyond that amount will not be eligible for the 250% risk-weight and would be treated according to APRA’s usual prudential requirement of deduction from CET1 Capital. Where an authorized deposit-taking institution investor in the ABGF has an undrawn contractual commitment to invest in the ABGF, it may assign a 20% credit conversion factor to this commitment for capital adequacy purposes. An authorized deposit-taking institution must notify its Responsible Supervisor if it is participating in the ABGF.
Related Links
Keywords: Asia Pacific, Australia, Banking, CET 1, Capital Framework, Regulatory Capital, Australian Business Growth Fund, Risk-Weighted Assets, Basel III, APRA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
APRA Issues Letter on Capital Treatment of Residential MortgagesRelated Articles
BCBS Amends Guidelines on Sound Management of AML/CFT Risks
BCBS amended the guidelines on sound management of risks related to money laundering and financing of terrorism (ML/FT).
US Agencies Finalize Amendments to Swap Margin Rule
US Agencies (Farm Credit Administration, FDIC, FED, FHFA, and OCC) finalized changes to the swap margin rule to facilitate implementation of prudent risk management strategies at banks and other entities with significant swap activities.
PRA Letter Sets Expectations on Approach to Managing Climate Risks
PRA published a letter that builds on the expectations set out in the supervisory statement (SS3/19) on enhancing banks' and insurers' approaches to managing the financial risks from climate change.
EBA Guidelines on Treatment of Structural Foreign Exchange Under CRR
EBA finalized the guidelines on treatment of structural foreign-exchange (FX) positions under Article 352(2) of the Capital Requirements Regulation (CRR).
FSB Issues Statement on Impact of COVID-19 Crisis on Benchmark Reform
FSB published a statement on the impact of COVID-19 pandemic on global benchmark transition.
IAIS Publishes List of Internationally Active Insurance Groups
IAIS published the list of Internationally Active Insurance Groups (IAIGs) publicly disclosed by group-wide supervisors.
FED Temporarily Revises FR Y-9C With Respect to PPPLF and CARES Act
FED has temporarily revised the reporting form on consolidated financial statements for holding companies (FR Y-9C; OMB No. 7100-0128).
EC Launches Consultation on Review of Solvency II Directive
EC launched a consultation on the review of the key elements of Solvency II Directive, with the comment period ending on October 21, 2020.
ECB Consults on Supervisory Approach to Consolidation in Banking
ECB launched a consultation on the guide that sets out supervisory approach to consolidation projects in the banking sector.
IAIS on Package for 2020 Data Collection on ICS and Aggregation Method
IAIS published technical specifications, questionnaires, and templates for 2020 Insurance Capital Standard (ICS) and Aggregation Method data collections.
