BANK 3.2.34 Deductions using corresponding deduction approach

(1) The deductions that must be made from CET 1 capital, additional tier 1 capital or tier 2 capital under the corresponding deduction approach are set out in this Subdivision. A banking business firm must examine its holdings of index securities and any underlying holdings of capital to determine whether any deductions are required as a result of such indirect holdings.
(2) Deductions must be made from the same category for which the capital would qualify if it were issued by the banking business firm itself or, if there is not enough capital at that category, from the next higher category.

Example

If the amount of tier 2 capital is insufficient to cover the amount of deductions from that category, the shortfall must be deducted from additional tier 1 capital and, if additional tier 1 capital is still insufficient, the remaining amount must be deducted from CET 1 capital.
(3) The corresponding deduction approach applies regardless of whether the positions or exposures are held in the banking book or trading book.
Amended by QFCRA RM/2015-3 (as from 1st January 2016).