Hong Kong Regulations

BANKING (CAPITAL) RULES - SECT 45

Provisions supplementary to section 42(1)(d)

(1) Subject to subsections (2) and (3), an authorized institution which uses
the STC approach or BSC approach, or both, shall not include in its
supplementary capital that amount of its total regulatory reserve for general
banking risks and collective provisions which exceeds 1.25% of the
institution's total risk-weighted amount for relevant risks, being the sum of
all the institution's risk-weighted amounts for—

   (a)  all the institution's non-securitization exposures to credit  risk
        subject to the STC approach or BSC approach, or both;

   (b)  all the institution's securitization exposures to credit risk subject
        to the STC(S) approach;

   (c)  all the institution's exposures to market risk; and

   (d)  all the institution's exposure to operational risk.

(2) An authorized institution which uses any combination of the STC  approach,
BSC approach and IRB approach—

   (a)  subject to paragraph (b), shall apportion its total regulatory 
        reserve for general banking risks and collective provisions between
        the STC approach, BSC approach, IRB approach, STC(S) approach or
        IRB(S) approach on a pro rata basis in accordance with the proportions
        of the institution's risk-weighted amount for credit risk which are
        calculated by using the STC approach, BSC approach, IRB approach,
        STC(S) approach or IRB(S) approach, as the case requires;

   (b)  may, with the prior consent of the Monetary Authority, use its own
        method to apportion its total regulatory reserve for general banking
        risks and collective provisions between the STC approach,
        BSC approach, IRB approach, STC(S) approach or IRB(S) approach; and

   (c)  shall, after it has carried out the apportionment referred to in
        paragraph (a) or (b)—

        (i)    comply with subsection (1) in respect of that portion of its
               total regulatory reserve for general banking risks and
               collective  provisions which is apportioned to the STC approach
               or BSC approach, or both, and the STC(S) approach; and

        (ii)   exclude from its supplementary capital that portion of its
               total regulatory reserve for general banking risks and
               collective  provisions which is apportioned to the IRB approach
               and IRB(S) approach.

(3) Where an authorized institution uses the IRB approach—

   (a)  subject to subsection (2)(c)(ii) and paragraph (b), the institution
        shall deduct the excess of its total EL amount over its total 
        eligible provisions from its core capital and supplementary capital in
        accordance with section 48(2)(b);

   (b)  if the total EL amount referred to in paragraph (a) is less than the
        total eligible provisions referred to in that paragraph, the
        institution may include the excess of the total eligible provisions
        over the total EL amount in its supplementary capital up to 0.6% of
        its risk-weighted amount for credit risk calculated by using the
        IRB approach.