Regulatory Alerts2022-05-17
Capital Adequacy Framework (Internal Models Based Approach)
The Reserve Bank of New Zealand issued document BS2B to establish the methodology for locally incorporated registered banks accredited to use internal models for calculating capital ratio requirements. The framework defines regulatory capital structures, including Common Equity Tier 1, Additional Tier 1, and Tier 2 capital, while specifying strict eligibility criteria, loss absorbency requirements, and mandatory deductions for each category. It further mandates the use of the Internal Ratings-Based approach for credit risk, alongside detailed rules for market risk, operational risk, and the consolidation of banking groups.
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