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GENPRU TP 8 Miscellaneous capital resources definitions for BIPRU firms

1Application

8.1

R

This section applies to a BIPRU firm.

8.2

R

Any provision of this section that applies on a consolidated basis under GENPRU TP 8.3R applies to any firm to which BIPRU 8 (Group risk - consolidation) applies.

Consolidation

8.3

R

A provision of this section applies on a consolidated basis for the purpose of BIPRU 8 (Group risk -consolidation) to the extent that, and in the same way that, the provision in BIPRU to which it relates applies on a consolidated basis.

Specific issues of TONS and other securities

8.4

R

A bank may treat a security forming part of an issue of securities listed in GENPRU TP 8.5R as eligible for inclusion within stage B of the capital resources table (Perpetual non cumulative preference shares) if it would not otherwise be eligible if:

(1)

on 31 December 2006 the bank was subject to IPRU(BANK);

(2)

the bank issued it on or before 31 December 2006; and

(3)

as at 31 December 2006 the bank included it, and was entitled to include it, in the calculation of its capital resources under IPRU(BANK) as permanent share capital and tier one capital as referred to in chapter CA of IPRU(BANK).

8.5

R

The issues of securities referred to in GENPRU TP 8.4R are as follows:

(1)

Barclays £400mn 6% perpetual TONs;

(2)

Abbey National £175m 6.984% perpetual TOPIC;

(3)

Northern Rock £200m 7.053% perpetual TONs;

(4)

Barclays $1bn 6.86% perpetual TONs;

(5)

Lloyds TSB $1000m2 6.90% perpetual capital securities; and

(6)

Abbey National $500m 7.375% T1MBS.

PIBS

8.6

R

A building society may treat a PIBS as eligible for inclusion within stage B of the capital resources table (Perpetual non-cumulative preference shares) if it would not otherwise be eligible if:

(1)

on 31 December 2006 the firm was subject to IPRU(BSOC);

(2)

the building society issued it before 18 November 2004; and

(3)

as at 31 December 2006 the building society included it, and was entitled to include it, in the calculation of its capital resources under IPRU(BSOC) as tier one capital as referred to in Annex 1A of chapter 1 of volume 1 of IPRU(BSOC).

Preference shares

8.7

R

A bank or BIPRU investment firm may treat a preference share as eligible for inclusion within stage B of the capital resources table (Perpetual non-cumulative preference shares) if it would not otherwise be eligible if:

(1)

on 31 December 2006 the firm was subject to IPRU(BANK) or IPRU(INV);

(2)

the firm issued it on or before 31 December 2006;

(3)

as at 31 December 2006 the firm included it, and was entitled to include it, in the calculation of its capital resources under IPRU(BANK) or IPRU(INV) as capital of a type that corresponded to tier one capital resources;

(4)

it would have been eligible for inclusion within stage B of the capital resources table except for the fact that it does not meet GENPRU 2.2.64 R (4)(b) (Restrictions on mandatory coupons for tier one capital) or GENPRU 2.2.109 R (1) (Restrictions on mandatory coupons for perpetual non-cumulative preference shares) or both of those rules;

(5)

the only reason that it does not meet GENPRU 2.2.64 R (4)(b) or GENPRU 2.2.109 R (1) is because a mandatory cash coupon is payable;

(6)

the firm has the right not to pay the cash coupon if it is in breach of any of the main BIPRU firm Pillar 1 rules or to the extent that paying such coupon would result in a breach of any of those rules; and

(7)

any amount not paid under (6) does not accumulate.

Innovative tier one capital

8.8

R

A bank may treat an item of a capital instrument as eligible for inclusion within stage C of the capital resources table (Innovative tier one capital) if it would not otherwise be eligible if:

(1)

on 31 December 2006 the firm was subject to IPRU(BANK);

(2)

the bank issued it on or before 31 December 2006;

(3)

as at 31 December 2006 the bank included it, and was entitled to include it, in the calculation of its capital resources under IPRU(BANK) as innovative tier one capital as referred to in chapter CA of IPRU(BANK);

(4)

it would have been eligible for inclusion within stage C of the capital resources table except for the fact that it does not meet GENPRU 2.2.64 R (4)(b) (Restrictions on mandatory coupons for tier one capital);

(5)

the only reason that it does not meet GENPRU 2.2.64 R (4)(b) is because a mandatory cash coupon is payable;

(6)

the bank has the right not to pay the cash coupon if it is in breach of any of the main BIPRU firm Pillar 1 rules or to the extent that paying such coupon would result in a breach of any of those rules; and

(7)

any amount not paid under (6) does not accumulate.

Upper tier 2 instruments: Deferral of interest

8.9

R

A bank or BIPRU investment firm may treat a capital instrument as eligible for inclusion within stage G of the capital resources table (Upper tier two capital) if it would not otherwise be eligible if:

(1)

on 31 December 2006 the firm was subject to IPRU(BANK) or IPRU(INV);

(2)

the firm issued it on or before 31 December 2006;

(3)

as at 31 December 2006 the firm included it, and was entitled to include it, in the calculation of its capital resources under IPRU(BANK) or IPRU(INV) as capital of a type that corresponded to upper tier two capital resources;

(4)

it would have been eligible for inclusion within stage G of the capital resources table except for the fact that it does not meet GENPRU 2.2.177 R (2);

(5)

the only reason that it does not meet GENPRU 2.2.177 R (2) is because a mandatory cash coupon is payable; and3

(6)

the firm has the right not to pay the cash coupon if it is in breach of any of the main BIPRU firm Pillar 1 rules or to the extent that paying such coupon would result in a breach of any of those rules.3

3

Lower tier 2 instruments: Additional events of default for building societies

8.10

R

A building society may treat a capital instrument as eligible for inclusion within stage H of the capital resources table (Lower tier two capital) if it would not otherwise be eligible if:

(1)

on 31 December 2006 the building society was subject to IPRU(BSOC);

(2)

the building society issued it on or before 31 December 2006;

(3)

as at 31 December 2006 the building society included it, and was entitled to include it, in the calculation of its capital resources under IPRU(BSOC) as Term Subordinated Debt falling within its Tier Two Capital (as referred to in Annex 1A of Chapter 1 and Chapter 2 of IPRU(BSOC));

(4)

it would have been eligible for inclusion within stage H of the capital resources table except for the fact that it does not meet GENPRU 2.2.159 R (2) (Events of default); and

(5)

the only reason that it does not meet GENPRU 2.2.159 R (2) is because it contains an event of default permitted by paragraph 2.8.10G(3) of Volume 1 of IPRU(BSOC) (cancellation of a society's registration under the Building Societies Act 1986 otherwise than under section 103(1)(a) of that Act).

Conversion ratio

8.11

R

GENPRU 2.2.138 R (2) (Tier one capital: Conversion ratio) does not apply to a capital instrument issued by a firm if:

(1)

on 31 December 2006 the firm was subject to IPRU(BANK), IPRU(BSOC) or IPRU(INV);

(2)

the firm issued it on or before 31 December 2006; and

(3)

as at 31 December 2006 the firm included it, and was entitled to include it, in the calculation of its capital resources under:

(a)

(in the case of a bank) IPRU (BANK) as innovative tier one capital as referred to in chapter CA of IPRU(BANK); or

(b)

(in the case of any other type of firm) IPRU(BSOC) or IPRU(INV) as capital of a type that corresponded to tier one capital.

Legal opinions

8.12

R

GENPRU 2.2.118 R (Legal opinions for innovative tier one capital) does not apply to a capital instrument issued by a firm if:

(1)

on 31 December 2006 the firm was subject to IPRU(BANK), IPRU(BSOC) or IPRU(INV);

(2)

the firm issued the capital instrument on or before 31 December 2006;

(3)

(in the case of a bank) as at 31 December 2006 the bank included the capital instrument, and was entitled to include it, in the calculation of its capital resources under IPRU(BANK) as innovative tier one capital as referred to in chapter CA of IPRU(BANK); and

(4)

(in any other case) the firm included the capital instrument, and was entitled to include it, in the calculation of its capital resources under IPRU(BSOC) or IPRU(INV) as capital of a type that corresponded to tier one capital.

8.13

R

The following rules:

(1)

GENPRU 2.2.159 R (12) (Legal opinions for tier two capital);

(2)

GENPRU 2.2.163 R (Legal opinions for tier two capital governed by a foreign law);

(3)

GENPRU 2.2.181 R (Legal opinions for upper tier two capital); and

(4)

GENPRU 2.2.244 R (Application of certain rules about tier two capital to tier three capital) so far as it applies the rules in (1) to (3);

do not apply to a capital instrument issued by a firm if:

(5)

on 31 December 2006 the firm was subject to IPRU(BANK), IPRU(BSOC) or IPRU(INV);

(6)

the firm issued the capital instrument on or before 31 December 2006; and

(7)

as at 31 December 2006 the firm included the capital instrument, and was entitled to include it, in the calculation of its capital resources under IPRU(BANK), IPRU(BSOC) or IPRU(INV) as capital of the type that corresponds to:

(a)

(where the firm disapplies the rule in (1) or (2)) tier two capital; or

(b)

(where the firm disapplies the rule in (3)) upper tier two capital; or

(c)

(where the firm disapplies the rule in (4)) tier three capital.

Version of IPRU

8.14

R

Any reference in this section to a type of capital in IPRU is to a type of capital in IPRU in the form IPRU was in on 31 December 2006.

Eligibility

8.15

G

If this section says that an item of capital is eligible for inclusion within a particular stage of the capital resources table this is still subject to the application of the capital resources gearing rules.

Waivers and concessions

8.16

G

A reference to a firm being entitled to include capital instruments in the calculation of its capital resources under IPRU at a particular level includes the firm being able to do this under a waiver or, in the case of IPRU(BANK) or IPRU(BSOC), a written approval by the FSA.

Combinations of provisions

8.17

G

A firm may combine the use of two or more of the provisions in this section.