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Basel ii
Accord
Part 1: Scope of
Application Sections 20 to
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Part 1: Scope of
Application
I.
Introduction
20.
This Framework will be applied on a consolidated basis to
internationally active
banks. This is the best
means to preserve the integrity of capital in
banks with subsidiaries by eliminating double
gearing.
21.
The scope of application of the Framework will include, on a fully
consolidated basis,
any holding company that is
the parent entity within a banking group to
ensure that it
captures the risk of
the whole banking
group.
(4) Banking groups are
groups that engage
predominantly
in banking activities and, in some countries, a
banking group may be
registered
as a bank.
(4) A holding company that is a
parent of a banking group may itself have a
parent holding company. In some structures, this
parent holding company may not be subject to
this Framework because it is not considered a
parent of a banking
group.
22.
The Framework will also apply to all
internationally active banks at every tier
within a
banking
group, also on a fully consolidated basis (see
illustrative chart at the end of
this
section).
(5) A
three-year transitional period for applying full
sub-consolidation will be
provided
for those countries where this is not currently
a requirement.
(5)
As an alternative to full sub-consolidation, the
application of this Framework to the stand-alone
bank (i.e. on a basis that does not consolidate
assets and liabilities of subsidiaries) would
achieve the same objective, providing the full
book value of any investments in subsidiaries
and significant minority-owned stakes isdeducted
from the bank’s
capital
23.
Further, as one of the principal objectives of
supervision is the protection
of
depositors,
it is essential to ensure that capital
recognised in capital adequacy measures
is
readily
available for those depositors. Accordingly,
supervisors should test that
individual
banks
are adequately capitalised on a stand-alone
basis.
II.
Banking, securities and other financial
subsidiaries
24. To the greatest
extent possible, all banking and other relevant
financial activities
(6)
(both
regulated and unregulated) conducted within a
group containing an
internationally
active
bank will be captured through consolidation.
Thus,
majority-owned or -controlled banking entities,
securities entities (where subject to broadly
similar regulation or where securities
activities are deemed banking activities) and
other financial entities
(7) should
generally be fully
consolidated.
(6) “Financial activities” do not
include insurance activities and “financial
entities” do not include insurance
entities.
(7)
Examples of the types of activities that
financial entities might be involved in include
financial leasing, issuing credit cards,
portfolio management, investment advisory,
custodial and safekeeping services and other
similar activities that are ancillary to the
business of
banking.
25.
Supervisors will assess the appropriateness of
recognising in consolidated
capital
the
minority interests that arise from the
consolidation of less than wholly owned
banking,
securities
or other financial entities.
Supervisors
will adjust the amount of such minority
interests that may be included in capital in the
event the capital from such minority interests
is not readily available to other group
entities.
26.
There may be instances where it is not feasible or desirable to
consolidate certain
securities
or other regulated financial entities.
This
would be only in cases where such holdings are
acquired through debt previously contracted and
held on a temporary basis, are subject to
different regulation, or where non-consolidation
for regulatory capital purposes is otherwise
required by law.
In
such cases, it is imperative for the bank
supervisor to obtain sufficient information from
supervisors responsible for such
entities.
27.
If any majority-owned securities and other
financial subsidiaries are not
consolidated
for
capital purposes, all equity and other
regulatory capital investments in those
entities
attributable
to the group will be deducted, and the assets
and liabilities, as well as
third-party
capital
investments in the subsidiary will be removed
from the bank’s balance sheet.
Supervisors
will ensure that the entity that is not
consolidated and for which the
capital
investment
is deducted meets regulatory capital
requirements. Supervisors
will monitor
actions
taken by the subsidiary to correct any capital
shortfall and, if it is not corrected in
a
timely
manner, the shortfall will also be deducted from
the parent bank’s
capital.
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