BANK 3.2.12 Tier 2 capital

Tier 2 capital is the sum of the following elements:

(a) instruments issued by the firm that satisfy the criteria in rule 3.2.13 for inclusion in tier 2 capital (and are not included in tier 1 capital);
(b) share premium resulting from the issue of instruments included in tier 2 capital;

Note Share premium is also known as stock surplus and constitutes additional paid-in capital.
(c) instruments, issued by consolidated subsidiaries of the firm and held by third parties, that satisfy the criteria in rule 3.2.18 for inclusion in tier 2 capital (and are not included in tier 1 capital);
(d) regulatory adjustments applied in the calculation of tier 2 capital in accordance with Division 3.2.D;
(e) general provisions or general reserves held against future, presently unidentified losses (but only up to a maximum of 1.25% of risk-weighted assets for credit risk, calculated using the standardised approach in Part 4.3).
Note General provisions and reserves are freely available to meet losses that subsequently materialise and therefore qualify for inclusion in tier 2 capital. In contrast, provisions for identified deterioration of particular assets or known liabilities, whether individual or grouped, should be excluded because they would not be available to meet losses.
Amended by QFCRA RM/2015-3 (as from 1st January 2016).