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
IMF Paper Studies Optimal Design of a Central Bank Digital CurrencyRelated Articles
APRA Finalizes Guidance on Management of Climate Change Risks
The Australian Prudential Regulation Authority (APRA) released the final Prudential Practice Guide on management of climate change financial risks (CPG 229) for banks, insurers, and superannuation trustees.
European Council Adopts Position on Digital Finance Package Proposals
The European Council adopted its position on two proposals that are part of the digital finance package adopted by the European Commission in September 2020, with one of the proposals involving the regulation on markets in crypto-assets (MiCA) and the other involving the Digital Operational Resilience Act (DORA).
PRA Proposes Rulebook Changes; BoE Extends BEEDS Testing Window
The Prudential Regulation Authority (PRA) is proposing, via the consultation paper CP21/21, to apply group provisions in the Operational Resilience Part of the PRA Rulebook (relevant for the Capital Requirements Regulation or CRR firms) to holding companies.
EC Proposes New Measures Under Capital Markets Union Package
The European Commission (EC) has adopted a package of measures related to the Capital Markets Union.
EBA Publishes Standards to Calculate Risk-Weights of CIUs Under CRR
The European Banking Authority (EBA) published the final report on draft regulatory technical standards for the calculation of risk-weighted exposure amounts of collective investment undertakings or CIUs, in line with the Capital Requirements Regulation (CRR).
FED Outlines Lending Conditions and Supervisory Activities in H1 2021
The Board of Governors of the Federal Reserve System (FED) published a report that summarizes banking conditions in the United States, along with the supervisory and regulatory activities of FED.
APRA Expects Boards to Strengthen Ability to Oversee Cyber Resilience
The Australian Prudential Regulation Authority (APRA) recently completed two pilot initiatives in its 2020-2024 Cyber Security Strategy, which was published in November 2020.
FSB Updates List of Global Systemically Important Banks
The Basel Committee on Banking Supervision (BCBS) published further information related to its 2021 assessment of global systemically important banks (G-SIBs), with additional details to help understand the scoring methodology.
FASB Proposes Improvements to Credit Losses Standard
The Financial Accounting Standards Board (FASB) is consulting on an Accounting Standards Update and the associated taxonomy improvements for requirements on troubled debt restructurings and vintage disclosures under the credit losses standard (for financial instruments) topic 326.
US Agencies Issue Statement on Crypto-Asset Policy Initiatives
US Agencies issued a statement that summarizes the work undertaken during the interagency policy sprints focused on crypto-assets and provides a roadmap of future work related to crypto-assets.
