BANK CAPITAL ADEQUACY-BASEL II AND BASEL III.

Running head: BANK CAPITAL ADEQUACY-BASEL II AND BASEL III
BANK CAPITAL ADEQUACY-BASEL II AND BASEL III
Name of the Student
Name of the University
Author Note

1
BANK CAPITAL ADEQUACY-BASEL II AND BASEL III
Table of Contents
Answer to question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................4
Answer to question 3:.................................................................................................................6
References..................................................................................................................................8

2
BANK CAPITAL ADEQUACY-BASEL II AND BASEL III
Answer to question 1:
The Commonwealth Bank of Australia is one of the Authorized Deposit-taking
Institution (ADI). The ADI is mainly regulated by the Australian Prudential Authority
(APRA), which is under the authority of the Banking Act, 1959. The prudential standards
APS 330 states about the public disclosures. In this document, the bank usually represents the
capital adequacy and risk-weighted assets (RWA). The document also presents information
regarding the material risk, securitization and interest rate risk of the bank. The disclosure
also presents information about the operational risk of the bank. The Base III mainly assist in
monitoring and measuring of capital (Cummings and Durrani 2016). The implementation of
the standards mentioned in the Basel III is being implemented from 1 January 2013. ARPA,
on the other hand, adopted a more conservative approach for implementation of the Basel III
standard. Extended Licensed Entity Group of Australia measures the capital requirements
(Nguyen and Cummings 2016). The Bank maintains the consolidated financial statements
after taking the standards of the Basel III into consideration.
The bank follows the regulations and standards mentioned in the Basel III. The bank
divides the regulatory capital into Common Equity Tier 1 and Common Equity Tier 2.
Common Equity Tier 1 includes shareholder's equity (Cummings and Guo 2018). The
balance of the shareholder's equity is displayed after deducting the goodwill and other
adjustments that are prescribed in the Basel III standards. Common Equity Tier 1, also
compromised of high-quality capital that provides unrestricted and permanent funds. It also
absorbs the losses that arise from the senior creditors and depositors.
Common Equity Tier 2 includes debt instruments, which are not considered under the
purview of Common Equity Tier 2. Thus, the total capital includes an aggregate of capital
mentioned in Tier 1 and Tier 2.

3
BANK CAPITAL ADEQUACY-BASEL II AND BASEL III
As mentioned in the Basel III, the bank measures the capital adequacy using the
capital ratio. The capital ratio, which can be identified from the balance sheet of the bank, is
usually measured after aggregating the capital Tier 1 and tier 2 (Cummings and Guo 2018).
The capital ratio is mainly represented as the percentage of total Risk-Weighted Assets. To
reduce and identify the risks that are associated with assets of the bank, Risk-Weighted
Assets plays a major role in finding risks. The identification process also includes identifying
the related exposures risk. To manage the capital, the bank usually implements new methods
(Niessen, Parwada and Ruenzi 2015). The bank also focuses on using new instruments that
are mentioned in Basel III for managing the capital. The capital that is managed by the bank
usually includes buybacks, dividends, hybrid capital raising, loan capital issues, and share
issues. The bank also manages the DRP policies of the capital.
According to Basel III standards and regulations the banks are bound to forecast the
three-year capital in the annual report (Bollen et al. 2015). The bank also needs to forecast the
strategic plan and tactics, which are created for handling the capital of the bank.