This Appendix illustrates the treatment of minority interest and other capital issued out of subsidiaries to third parties, which is set out in section 2.7 of the Tier Capital Supply Standard (Paragraph 35 to 41).

A banking group consists of two legal entities that are both banks. Bank P is the parent, Bank S is the subsidiary, and their unconsolidated balance sheets are set out below

The balance sheet of Bank P shows that in addition to its loans to customers, it owns 70% of the common shares of Bank S, 80% of the Additional Tier 1 of Bank S and 25% of the Tier 2 capital of Bank S. The ownership of the capital of Bank S is therefore as follows:

The consolidated balance sheet of the banking group is set out below:

For illustrative purposes, Bank S is assumed to have risk-weighted assets of 100. In this example, the minimum capital requirements of Bank S and the subsidiary’s contribution to the consolidated requirements are the same since Bank S does not have any loans to Bank P. This means that it is subject to the following minimum plus capital conservation buffer requirements and has the following surplus capital:

The following table illustrates how to calculate the amount of capital issued by Bank S to include in consolidated capital, following the calculation procedure set out in paragraphs 35 to 41 of the Tier Capital Supply Standards.

The following table summarizes the components of capital for the consolidated group based on the amounts calculated in the table above. Additional Tier 1 is calculated as the difference between Common Equity Tier 1 and Tier 1 and Tier 2 is the difference between Total Capital and Tier 1.