Table of Contents Cover Title Page Copyright Dedication Preface About the Author Chapter 1: Overview of Basel III 1.1 Introduction to Basel III 1.2 Expected and Unexpected Credit Losses and Bank Capital 1.3 The Three-Pillar Approach to Bank Capital 1.4 Risk-Weighted Assets (RWAs) Chapter 2: Minimum Capital Requirements 2.1 Components and Minimum Requirements of Bank Capital 2.2 Components and Minimum Requirements of Capital Buffers 2.3 Capital Conservation Buffer 2.4 Countercyclical Buffer 2.5 Systemic Risk Buffers 2.6 Going Concern vs Gone Concern Capital 2.7 Case Study: UBS vs JP Morgan Chase G-SIB Strategies 2.8 Transitional Provisions Chapter 3: Common Equity (CET1) Capital 3.1 CET1 Minimum Requirements 3.2 Eligibility Requirements of CET1 Instruments 3.3 Case Study: UBS Dividend Policy and its Impact on CET1 3.4 Case Study: Santander Dividend Policy and its Impact in CET1 3.5 Accumulated Other Comprehensive Income 3.6 Case Study: Banco BPI’s Partial Disposal of Portfolio of Portuguese and Italian Government Bonds 3.7 Other Items Eligible for CET1 Capital 3.8 CET1 Prudential Filters 3.9 Additional Valuation Adjustments 3.10 Intangible Assets (Including Goodwill) 3.11 Case Study: Danske Bank’s Goodwill Impairment 3.12 Case Study: Barclays Badwill Resulting from its Acquisition of Lehman Brothers N.A 3.13 Deferred Tax Assets 3.14 Fair Value Reserves Related to Gains or Losses on Cash Flow Hedges 3.15 Negative Amounts Resulting from the Calculation of Expected Loss Amounts 3.16 Equity Increases Resulting from Securitised Assets 3.17 Gains or Losses on Liabilities Valued at Fair Value Resulting from Changes in Own Credit Standing 3.18 Defined-Benefit Pension Plans 3.19 Case Study: Lloyds’ De-Risking of its Defined Benefit Pension Plans 3.20 Holdings by a Bank of Own CET1 Instruments 3.21 Case Study: Danske Bank’s Share Buyback Programme 3.22 Case Study: Deutsche Bank’s Treasury Shares Strategy 3.23 Holdings of the CET1 Instruments of Financial Sector Entities 3.24 Deduction Election of 1,250% RW Assets 3.25 Amount Exceeding the 17.65% Threshold 3.26 Foreseeable Tax Charges Relating to CET1 Items 3.27 Excess of Qualifying AT1 Deductions 3.28 Temporary Filter on Unrealised Gains and Losses on Available-for-Sale Instruments Chapter 4: Additional Tier (AT1) Capital 4.1 AT1 Minimum Capital Requirements 4.2 Criteria Governing Instruments Inclusion in AT1 Capital 4.3 Deductions from AT1 Capital 4.4 Holdings of AT1 Instruments of Other Financial Institutions 4.5 Case Study: Lloyds Banking Group Exchange Offer of Tier for AT1 Securities Chapter 5: Tier Capital 5.1 Tier Capital Calculation and Requirements for Inclusion 5.2 Negative Amounts Resulting from the Calculation of Expected Loss Amounts 5.3 Deductions from Tier Capital 5.4 Holdings of Tier Instruments of Other Financial Institutions 5.5 Case Study: Deutsche Bank’s Tier Issue Chapter 6: Contingent Convertibles (CoCos) 6.1 Types of CoCos 6.2 Trigger Levels 6.3 CoCos’ Statutory Conversion or Write-Down — Point of Non-Viability 6.4 CoCo’s Coupon Suspension — Maximum Distributable Amount 6.5 Adding Pillar Capital Requirements to the MDA Calculation 6.6 Case Study: Barclays’ Equity Convertible CoCo 6.7 Case Study: Deutsche Bank’s Write-Down CoCo 6.8 CoCos from an Investor’s Perspective Chapter 7: Additional Valuation Adjustments (AVAs) 7.1 Fair Valuation Accounting Framework (IFRS 13) 7.2 Case Study: Goldman Sachs Investment in Industrial and Commercial Bank of China 7.3 Prudent Valuation vs Fair Valuation 7.4 Additional Valuation Adjustments (AVAs) Under the Core Approach 7.5 Market Price Uncertainty AVA 7.6 Close-Out Costs AVA 7.7 Model Risk AVA 7.8 Unearned Credit Spreads AVA 7.9 Investing and Funding Costs AVA 7.10 Concentrated Positions AVA 7.11 Future Administrative Costs AVA 7.12 Early Terminations Costs AVA 7.13 Operational Risk AVA Chapter 8: Accounting vs Regulatory Consolidation 8.1 Accounting Recognition of Investments in Non-Structured Entities 8.2 Accounting for Full Consolidation 8.3 Working Example on Consolidation 8.4 Loss of Control 8.5 The Equity Method — Associates 8.6 Case Study: Deutsche Bank’s Acquisition of Postbank 8.7 IFRS Consolidation vs Regulatory Consolidation Chapter 9: Treatment of Minority Interests in Consolidated Regulatory Capital 9.1 Minority Interests Included in Consolidated CET1 9.2 Minority Interests Included in Consolidated AT1, Tier 1, Tier and Qualifying Total Capital 9.3 Illustrative Example 1: Calculation of the Impact of Minority Interests on Consolidated Capital 9.4 Illustrative Example 2: Calculation of the Impact of Minority Interests on Consolidated Capital 9.5 Case Study: Artificial Creation of Minority Interests 9.6 Case Study: Banco Santander Repurchase of Minority Interests in Santander Brasil Chapter 10: Investments in Capital Instruments of Financial Institutions 10.1 Basel III Treatment of Investments in Capital Instruments of Financial Institutions 10.2 Worked Examples of Investments in Capital Instruments of Unconsolidated Financial Institutions 10.3 Case Study: BBVA’s Acquisition of Garanti Chapter 11: Investments in Capital Instruments of Insurance Entities 11.1 The Concept of Double Leverage 11.2 Case Study: ING’s Double Leverage 11.3 Regulatory Peculiarities of Investments in Insurance Entities 11.4 Case Study: Lloyds Banking Group’s Capital Enhancement Initiatives Related to its Insurance Subsidiaries Chapter 12: Equity Investments in Non‐financial Entities 12.1 Basel III and Equity Exposures to Non-Financial Entities in the Banking Book 12.2 Equity Exposures Under the Standardised Approach 12.3 Equity Exposures Under the IRB Approach 12.4 Expected Losses from Equity Exposures Under the IRB Approach 12.5 Qualified Holdings Outside the Financial Sector Exceeding the 15% Threshold 12.6 Temporary Exemption from the IRB Treatment of Certain Equity Exposures 12.7 Case Study: CaixaBank’s Mandatory Exchangeable on Repsol 12.8 Case Study: Mitsubishi UFJ Financial Group’s Corporate Stakes Chapter 13: Deferred Tax Assets (DTAs) 13.1 Taxes from an Accounting Perspective 13.2 Accounting for Deferred Taxes Arising from Temporary Differences — Application to Equity Investments at Either FVTPL or FVTOCI 13.3 Worked Example: Temporary Differences Stemming from Debt Instruments Recognised at Fair Value 13.4 Case Study: UBS’s Deferred Tax Assets 13.5 Deferred Tax Assets from a Regulatory Capital Perspective 13.6 Case Study: Spanish Banks Conversion of DTAs Into Tax Credits, Improving Their CET1 Positions 13.7 Case Study: Lloyds Banking Group’s Expected Utilisation of Deferred Tax Assets 13.8 Initiatives to Reduce Impacts of Deferred Tax Assets on Bank Capital Chapter 14: Asset Protection Schemes and Bad Banks 14.1 ING’s Illiquid Asset Back-Up Facility with the Dutch State 14.2 Royal Bank of Scotland’s Asset Protection Scheme 14.3 Case Study: SAREB, The Spanish Bad Bank 14.4 Case Study: NAMA, The Irish Bad Bank 14.5 Asset Protection Schemes versus Bad Banks Chapter 15: Approaching Capital Enhancement Initiatives 15.1 Initial Thoughts 15.2 Overview of Main CET1 Capital Ratio Enhancement Initiatives 15.3 Case Study: Deutsche Bank’s Rights Issue 15.4 Case Study: Structuring the Disposal of a Portfolio of NPLs 15.5 Case Study: Banco Popular Joint Venture with Verde Partners and Kennedy Wilson 15.6 Case Study: Co-Operative Bank’s Liability Management Exercise Glossary Bibliography Index End User License Agreement List of Tables Chapter 2: Minimum Capital Requirements Table 2.1 UBS's G‐SIB Indicators and their Amounts Table 2.2 UBS's Score of G‐SIB Indicators Table 2.3 UBS's Calculation of Final G‐SIB Score Table 2.4 Implications of a separation between JP Morgan's retail activities and its corporate and investment bank Table 2.5 Phase‐in Eligibility AT1 and Tier Instruments Table 2.6 Transitional Provisions Regarding Capital Conservation and G‐SIB Buffers Chapter 3: Common Equity (CET1) Capital Table 3.1 HSBC's Fully‐loaded CET1 Capital as of 31 December 2015 Table 3.2 Santander's Outstanding Number of Ordinary Shares under the Previous and New Dividend Policies (in millions) Table 3.3 Translation of Subco's Assets, Liabilities and Shareholders' Equity on Acquisition Date Table 3.4 Translation of Subco's Shareholders' Equity on Acquisition Date Table 3.5 ParentCo's, SubCo's and the Group's Balance Sheets as of January 20X0 Table 3.6 SubCo's Stand‐alone Balance Sheet as of 31 December 20X0 Table 3.7 Translation of SubCo's Statement of Financial Position on 31 December 20X0 Table 3.8 Exchange Differences Stemming from the Translation of SubCo's Balance Sheet Table 3.9 Fixed‐rate Bond Main Terms Table 3.10 Calculation of Interest Income and Amortised Cost Amounts Table 3.11 Period Change in Bond's Clean Fair Value Table 3.12 Amounts recognised in the FVOCI Reserve Table 3.13 BPI's Bond Portfolio and Related Hedges Unrealised Losses as of 31 December 2013 Table 3.14 BPI's Bond Portfolio and related Hedges Unrealised Losses as of 31 March 2014 Table 3.15 Main Terms of Bank ABC's Floating‐rate Bond Table 3.16 Main Terms of Bank ABC's Interest Rate Swap Table 3.17 Bond Interest and Swap Settlement Amounts Table 3.18 Swap Effective and Ineffective Amounts Table 3.19 Initiatives taken by Lloyds to reduce its OCI Volatility due to its DBPPs Table 3.20 Main Terms of Deutsche Bank's Forward on its own Shares Table 3.21 Calculation of Interest Expense and Carrying Amount of the Liability Table 3.22 Main Terms of Deutsche Bank's Put Option on Own Shares Table 3.23 Calculation of Interest Expense and the Liability Carrying Amount Table 3.24 Main Terms of Deutsche Bank's Call Option on Own Shares Chapter 4: Additional Tier (AT1) Capital Table 4.1 Main Terms of Lloyds' USD ECN Bond Table 4.2 Main Terms of Lloyds' GBP AT1 Instruments Chapter 5: Tier Capital Table 5.1 Template of Tier Instruments' Main Terms Table 5.2 Main Terms of Deutsche Bank's USD Tier Issue Table 5.3 Calculation of Interest Expense and Amortised Cost Amounts Chapter 6: Contingent Convertibles (CoCos) Table 6.1 Comparative Main Terms of AT1 CoCos and Tier Instruments Table 6.2 Main terms of Barclays Bank's GBP AT1 Table 6.3 Main terms of Deutsche Bank's EUR tranche contingent convertible Chapter 7: Additional Valuation Adjustments (AVAs) Table 7.1 Calculation of unreduced valuation exposure Table 7.2 Calculation of reduced valuation exposure Chapter 8: Accounting vs Regulatory Consolidation Table 8.1 Aggregation of Megabank's and Trustbank's financial statement items Table 8.2 Elimination entries performed to the combined financial statements Table 8.3 Non‐controlling interest adjustment Table 8.4 Consequent consolidation worksheet Table 8.5 Consolidated profit or loss statement Table 8.6 Fair valuation of Postbank's identifiable assets and liabilities Chapter 9: Treatment of Minority Interests in Consolidated Regulatory Capital Table 9.1 Capital position of Bank S Table 9.2 Calculation of the qualifying consolidated capital attributable to minority interests Table 9.3 Calculation of consolidated regulatory capital Chapter 10: Investments in Capital Instruments of Financial Institutions Table 10.1 Fair valuation of Garanti's identifiable assets and liabilities Chapter 12: Equity Investments in Non‐financial Entities Table 12.1 Main terms of CaixaBank's mandatory exchangeable into Repsol Chapter 13: Deferred Tax Assets (DTAs) Table 13.1 Carrying amount for assets and liabilities Table 13.2 Main terms of the debt instrument acquired by Megabank Table 13.3 Calculation of each period interest income and amortised cost amounts Table 13.4 Calculation of the period change in the debt's fair value Table 13.5 Calculation of amounts in OCI related to the debt investment Table 13.6 Calculation of the debt's tax base related to its amortised cost balances Table 13.7 Calculation of the debt's tax base related to its interest income Table 13.8 Temporary differences arising from the debt investment where taxation is based on its amortised cost Table 13.9 Temporary differences arising from the debt investment where taxation is based on its original cost Table 13.10 Calculation of reversing temporary differences requiring further assessment of utilisation Table 13.11 Calculation of the adjusted taxable profit (or loss) for utilisation assessment Table 13.12 Expiries of UBS's unrecognised tax loss carry forwards Table 13.13 Main sources of Lloyds' gross deferred tax assets Table 13.14 Main sources of Lloyds' gross deferred tax liabilities Table 13.15 Sale and leaseback transactions undertaken by Santander Table 13.16 Main terms of Santander's sale and leaseback transaction on its headquarters building complex Chapter 14: Asset Protection Schemes and Bad Banks Table 14.1 Asset types covered by RBS's asset protection scheme Table 14.2 Scenarios of potential conversion of RBS's B shares Table 14.3 Actions on RBS's share capital in 2008 and 2009 Table 14.4 Geographical split of NAMA's collateral Chapter 15: Approaching Capital Enhancement Initiatives Table 15.1 Quorum and voting requirements to obtain approval by the holders of the exchanged instruments List of Illustrations Chapter 1: Overview of Basel III Figure 1.1 Bank regulatory capital accords Figure 1.2 Expected and unexpected credit losses Figure 1.3 The three pillars around Basel III Figure 1.4 Pillar of Basel III Figure 1.5 Liquidity coverage Figure 1.6 Main components of RWAs Chapter 2: Minimum Capital Requirements Figure 2.1 Components of a bank's regulatory total capital Figure 2.2 Minimum CET1 requirements including capital buffers Figure 2.3 Interaction of the countercyclical buffer with the capital conservation buffer Figure 2.4 Interaction of the countercyclical buffer with the credit‐to‐GDP gap Figure 2.5 Countercyclical buffer situation Figure 2.6 Systemic risk buffers Figure 2.7 Group/subsidiary – G‐SII/O–SII/SRB combinations Figure 2.8 Going concern vs gone concern regulatory capital Figure 2.9 G‐SIIs – Individual indicators of designation criteria Figure 2.10 RWAs divisional breakdown, as at the end of 2014 Figure 2.11 EUR/USD spot rate (Jan‐13 to Apr‐15) Figure 2.12 Three‐dimensional assessment of G‐SIB enhancement initiatives Figure 2.13 G‐SIB surcharge share of each Corporate and Investment Banking division business (2014) Figure 2.14 G‐SIB indicator distribution within the Corporate and Investment Banking division (2014) Chapter 3: Common Equity (CET1) Capital Figure 3.1 Components in the calculation of CET1 Figure 3.2 Main elements of (accounting) shareholders' equity Figure 3.3 Balance sheet effects of the scrip dividend Figure 3.4 Balance sheet effects of the cash dividend Figure 3.5 EBA's hierarchy in the calculation of a dividend payout ratio Figure 3.6 UBS dividends and buybacks 2000–2014 Figure 3.7 UBS's 2011–2014 CET1 capital ratio Figure 3.8 Accounting impact of UBS's stock dividend paid using treasury shares Figure 3.9 Impact on CET1 of UBS's stock dividend paid using treasury shares interest rate swap generating Interest rate risk Interest rate swaps Internal capital adequacy assessment process (ICAAP) International Accounting Standards Board (IASB): on accounting consolidation on CET1 capital on deferred tax assets and liabilities on leases International Financial Reporting Standards (IFRS): for accounting consolidation for asset protection schemes for AT1 capital for cash flow hedges for CET1 capital for CoCos for deferred tax assets and liabilities for equity investments in non-financial entities for fair valuation accounting framework for fair value hedges for goodwill and intangible assets for leases for liability valuation changes Investing and funding cost adjustments Irish banks, NAMA as asset relief scheme for J Japanese banks, equity investments in non-financial entities by Joint ventures: capital enhancement initiatives with equity consolidation in goodwill and investments in JP Morgan Chase, G-SIB strategies of K Kennedy Wilson, Banco Popular joint venture with L Lehman Brothers, Barclays’s badwill from acquisition of Leverage: double leverage leverage ratio Liabilities: accounting consolidation on identifiable as amortised costs categories of CET1 capital impacted by valuation of CoCo redemption consideration as debit (DVA) vs credit valuation adjustment (CVA) to deferred tax (see Deferred tax liabilities) exposure at default profile calculations for fair value option for fair value through profit and loss of funding valuation adjustment (FVA) to liability management exercises market factors affecting netting set of partial repurchases of probability of default calculations for time grid for valuation of unrealised gains or losses on Liquidity: CoCos not enhancing liquidity coverage ratio liquidity risk Lloyds Banking Group: defined benefit pension plan de-risking by expected utilisation of DTAs by insurance entity capital initiatives tier exchange offer for AT1 securities Losses See also Profit or loss asset protection schemes terms for CET1 capital consideration of expected and unexpected, generally expected losses from equity investments in non-financial entities going concern vs gone concern absorption of negative amounts from expected loss calculations M Mandatory convertible bonds Mandatory exchangeable bonds Market: fair valuation accounting framework consideration of market discipline market effects on G-SII market factors affecting liabilities market price uncertainty adjustments market risk principal vs most advantageous Market discipline Market risk Maximum distribution amount (MDA): available distributable items as available distributable items as of CET1 capital CoCo restrictions including minimum capital requirements and Mergers and acquisitions: accounting vs regulatory consolidation for Barclays’s Lehman acquisition BBVA’s Garanti acquisition BNP Paribas’s Fortis Bank acquisition call and put options on bank acquisition as capital enhancement initiatives deferred tax liabilities, bad will and Deutsche Bank’s Postbank acquisition goodwill and subsidiary acquisition right of first refusal in bank acquisition step acquisitions as translation differences on acquisition date Mid-to-bid or mid-to-offer adjustments Minimum capital requirements: AT1 capital in Basel III capital recommendations on capital conservation buffer in case study of CET1 capital in components and countercyclical buffer in going concern vs gone concern capital in grandfathering of noncompliant AT1 and Tier instruments in leverage ratio in liquidity coverage ratio in maximum distribution amount and minimum capital buffer requirements minority interests in relation to net stable funding ratio in phase-in vs fully loaded calculation basis for risk-weighted assets in subsidiaries’ systemic risk buffer in three-pillar approach to bank capital on tier capital in transitional provisions in Minority interests See also Noncontrolling interests artificial creation of AT1 capital inclusion of Basel III capital recommendations on capital enhancement initiative reduction of excess capital attributable to case studies of CET1 capital eligibility as combined buffer requirements for exceptions to general treatment of general treatment of goodwill and illustrative examples of impact of initial public offering impacting mandatory convertible bond sale impacting minimum capital requirements in relation to repurchase of SPE funding of surplus Tier capital attributed to tier capital inclusion of Mitsubishi UJF Financial Group, corporate stakes of Model risk adjustments Model uncertainty adjustments Mortgage servicing rights (MSRs) N NAMA (National Asset Management Agency), bad bank scheme with Net stable funding ratio Non-cash assets, distribution of in lieu of dividends Noncontrolling interests See also Minority interests accounting vs regulatory consolidation calculation of deferred taxes related to goodwill valuation including shareholders’ equity and translation differences for Non-financial entities, investments in See Equity investments in non-financial entities NPL (non-performing loan portfolio) disposal O Operational risk: operational risk adjustments in risk-weighted assets Options: call options (see Call options) options time value hedge reserve put options Organic capital generation Other comprehensive income See Accumulated other comprehensive income Other systemically important institutions (O-SII), systemic risk buffers for P Pension plans See Defined benefit pension plans Perpetual instruments Point of non-viability Postbank, Deutsche Bank acquisition of Profit or loss: accounting vs regulatory consolidation on accumulated OCI reclassification to amortised costs associated with capital enhancement initiatives impacting CET1 capital consideration of day one profit/loss, fair value of deferred tax assets recognised in defined benefit pension plan changes as equity investments in non-financial entities’ fair value through OCI of accumulated OCI profit and loss fair value through profit or loss based on future profit availability impacting deferred tax assets interim OCI profits and losses liability valuation changes creating maximum distributable amount as percentage of repurchase of bank’s own CET1 capital generating from shareholders’ equity unrealised, on available-for-sale instruments unrealised, on equity investments in non-financial entities unrealised, on liabilities Prudential filters, for CET1 capital Put options: on bank acquisition on repurchase of bank’s own shares R Reciprocal cross holdings Reciprocity principle Regulation (EU) No 575/2013 (CRR): additional valuation adjustments in AT1 capital in Basel III capital recommendations incorporated in CET1 capital in CoCo trigger events in deferred tax assets in equity investments in non-financial entities in financial institution capital instrument investments in insurance entity capital instrument investments in minimum capital requirements transitional provisions in minority interests in significant subsidiaries disclosure requirements in tier capital in Regulatory consolidation See Accounting vs regulatory consolidation REO (real estate owned) disposal Retained earnings: asset protection schemes impacting as CET1 capital minority interests and from shareholders’ equity Right of first refusal, in bank acquisition Rights issue Risk-weighted assets (RWAs): asset protection schemes impacting AT1 capital ratio in relation to bad bank schemes impacting Basel III capital recommendations on capital charges link to capital enhancement initiatives impacting CET1 ratio relative to countercyclical buffers for credit risk in deferred tax assets in relation to equity investments in non-financial entities as financial institution capital instrument investments as insurance entity capital instrument investments as market risk in minimum capital requirements relative to operational risk in other risk in securitisation exposures in systemic risk buffers for tier capital ratio in relation to Royal Bank of Scotland, asset protection scheme of S Santander See Banco Santander SAREB (Sociedad de Activos de Restructuración Bancaria), bad bank scheme with Scrip dividends Securitised assets, CET1 capital exclusion of equity increases from Shareholders’ equity: accounting vs regulatory consolidation on in AT1 capital in CET1 capital CoCos as equity instrument impacting deferred tax assets and liabilities recognised in dividends from (see also Dividends) noncontrolling interests in (see also Noncontrolling interests) ordinary shares in other comprehensive income from (see also Accumulated other comprehensive income) other equity instruments in profit or loss from (see also Profit or loss) retained earnings from (see also Retained earnings) securitised assets increasing share buyback programme impacting share premium in (see also Share premium) treasury shares in (see also Treasury shares) Share premium: asset protection schemes impacting as CET1 capital deferred taxes related to minority interests and Spanish banks See also specific banks DTA conversion into tax credits by SAREB for restructuring of Special purposes entities/vehicles (SPE/SPVs): accounting vs regulatory consolidation of bad bank structure with for indirect issuance of AT1 capital minority interests funding through NPL disposal to sales and leaseback transaction involving Subsidiaries: CET1 capital regulatory exclusions for deferred tax assets and liabilities of foreign subsidiary net assets foreign subsidiary translation differences fully consolidated goodwill valuation related to insurance entity loss of control of minimum capital requirements for minority interests of significant subsidiaries disclosure requirements Supervisory review and evaluation process Swaps: cross-currency swaps interest rate swaps liability valuation changes for Systemic risk buffers: CoCo conversion and global systemically important institution buffer as interaction between minimum capital requirements on minority interests and other systemically important institution buffer as systemic risk buffer, generally, as UBS vs JP Morgan case study of T Tax effects: accounting vs regulatory consolidation on of accumulated OCI of amortisation (see Amortised costs) on AT1 capital of bad will on CoCo redemption of deferred tax assets (see Deferred tax assets) of deferred tax liabilities (see Deferred tax liabilities) of foreseeable AT1 capital tax charges of foreseeable CET1 items tax charges of goodwill impairment of goodwill tax deductibility of income tax of NPL disposal prudential filters for of tax credit carry forwards of tax loss carry forwards Three-pillar approach to bank capital: market discipline in minimum capital requirements in supervisory review and evaluation process in Tier capital See Additional tier (AT1) capital; Common equity tier (CET1) capital Tier capital: amortisation of AT1 capital exchange for Basel III capital recommendations on calculation of capital enhancement initiatives with case study of CoCos qualifying as criteria governing instruments inclusion in deductions from direct and indirect holdings of own Enhanced Capital Notes as expected losses impacting financial institutions’ holdings impacting grandfathering of noncompliant minimum capital requirements for minority interests inclusion in reciprocal cross holdings of redemption or repurchase of risk-weighted assets in relation to “Too-big-to-fail” problem Transitional provisions: for CET1 capital prudential filters for minimum capital requirements Translation differences: for accumulated OCI on acquisition date deferred taxes related to on first reporting date for foreign subsidiary net assets for goodwill for noncontrolling interests Treasury shares: as CET1 capital as dividends U UBS: deferred tax assets dividend policy and CET1 capital impacts of G-SIB strategies of Unearned credit spread adjustments V Valuation allowances Värde Partners, Banco Popular joint venture with W Working examples See Examples WILEY END USER LICENSE AGREEMENT Go to www.wiley.com/go/eula to access Wiley’s ebook EULA ... Instruments of Financial Institutions 10.1 Basel III Treatment of Investments in Capital Instruments of Financial Institutions 10.2 Worked Examples of Investments in Capital Instruments of Unconsolidated... investments in capital instruments of banks Figure 10.3 General framework of the regulatory treatment of investments in capital instruments of insurance companies Figure 10.4 Basel III' s treatment of. .. non‐significant investments in the capital instruments of unconsolidated financial institutions Figure 10.5 Basel III treatment of risk‐weighted capital investments in the banking book Figure