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3.9 Investments in the Capital of Banking, Securities, Financial and Insurance Entities Where the Bank Owns up to 10% of the Issued Common Share Capital of the Entity

C 52/2017 STA يسري تنفيذه من تاريخ 1/12/2022

64.The regulatory adjustment described in this Standard applies to investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation and where the bank does not own more than 10% of the issued common share capital of the entity. In addition,

  1. i.Investments include direct, indirect and synthetic holdings of capital instruments. For example, banks should look through holdings of index securities to determine their underlying holdings of capital.

    If banks find it operationally burdensome to look through and monitor their exact exposure to the capital of other financial institutions as a result of their holdings of index securities, Central Bank may permit banks, subject to prior supervisory approval, to use a conservative estimate. The methodology for the estimate should demonstrate that in no case will the actual exposure be higher than the estimated exposure. If a look-through or an acceptable estimate are not possible, the full amount of the investment should be accounted for.
     
  2. ii.Holdings in both the banking book and trading book are to be included. Capital includes common stock and all other types of cash and synthetic capital instruments (e.g. subordinated debt). It is the net long position that is to be included (i.e. the gross long position net of short positions in the same underlying exposure where the maturity of the short position either matches the maturity of the long position or has a residual maturity of at least one year).
  3. iii.Underwriting positions held for five working days or less can be excluded. Underwriting positions held for longer than five working days must be included.
  4. iv.If the capital instrument of the entity in which the bank has invested does not meet the criteria for CET1, AT1, or Tier 2 capital of the bank, the capital is to be considered common shares for the purposes of this regulatory adjustment.
  5. v.Banks may, with prior Central Bank’s approval, exclude temporarily certain investments where these have been made in the context of resolving or providing financial assistance to reorganize a distressed institution.

65.If the total of all holdings listed above in aggregate exceed 10% of the bank’s common equity (after applying all other regulatory deductions in full, apart from the deductions outlined in this Standard (paragraph 63 to 71)) then the amount above 10% is required to be deducted from CET1.

66.Amounts below the threshold that are not deducted are to be risk weighted as follows:

  1. i.Amounts below the threshold that are in the banking book are to be risk weighted as per the credit risk (i.e. investments that are not listed and not marked to market will be risk weighted at 150% and investments that are listed will be risk weighted at 100%).
  2. ii.Amounts below the threshold that are in the trading book are to be risk weighted as per the market risk rules.