BANK 3.2.41 Deductions from common equity tier 1 capital

(1) In addition to the other deductions to CET 1 capital under this Chapter, deductions may be required to CET 1 capital under the threshold deduction rule.
(2) The threshold deduction rule provides recognition for particular assets that are considered to have some limited capacity to absorb losses. The following items come within the threshold deduction rule:
(a) significant investments in the common shares, or other instruments that qualify as CET 1 capital, of an unconsolidated entity concerned;
(b) mortgage servicing rights;
(c) deferred tax assets that relate to temporary differences (for example, allowance for credit losses).
(3) Instead of full deduction, the items that come within the threshold deduction rule receive limited recognition when calculating CET 1 capital. The total of each of the items in subrule (2) do not require adjustment from CET 1 capital and are risk-weighted at 300% (for items listed on a recognised exchange) or 400% (for items not so listed) provided that:
(a) each item is no more than 10% of the firm's CET 1 capital (net of all regulatory adjustments except those under this Subdivision); or
(b) in total, the 3 items are no more than 15% of the firm's CET 1 capital (net of all regulatory adjustments except those under this Subdivision).
(4) A banking business firm must deduct from CET 1 capital any amount in excess of the threshold in subrule (3)(a) or (b).
Amended by QFCRA RM/2015-3 (as from 1st January 2016).