Bank regulators impose minimum capital adequacy standards on commercial banks. a) Table 2 demonstrates the capital adequacy ratios of Commonwealth Bank of Australia (CBA). Comment on the compliance of CBA to the Prudential Standard APS110- Capital Adeqaucy 25 Marks Table 2: Capital Adequacy Ratios: Commonwealth Bank of Australia Group Regulatory Capital Position 30 Jun 21 31 Dec 20 30 Jun 20 Summary Group Capital Adequacy Ratios (Level 2) of % Common Equity Tier 1 13. 12. 6 11. 6 Additional Tier 1 2. 6 2.4 2. 3 Tier 1 15. 7 15. 0 13. 9 Tier 2 4. 1 3. 9 3. 6 Total Capital (APRA 19. 8 18. 9 17. 5 Common Equity Tier 1 (Internationally Comparable) 1 19. 4 18. 7 17. 4 Analysis aligns with the 13 July 2015 APRA study titled "International capital comparison study". 30 Jun 21 31 Dec 20 1 30 Jun 20 1 Group Regulatory Capital Position SM $M SM Ordinary share capital and treasury shares 2 38,432 38,432 38,182 Reserves 3,249 2,287 2,668 Retained earnings 36,558 33,832 30,811 Common Equity Tier 1 Capital before regulatory adjustments 78,239 74,551 71,661 Common Equity Tier 1 regulatory adjustments (19,403) (17,476) (19,110) Common Equity Tier 1 Capital 58,836 57,075 52,551 Additional Tier 1 Capita 12,008 10.825 10,841 Tier 1 Capital 70,844 67,900 63,392 Tier 2 Capital 18,472 17,822 16,429 Total Capital 39,316 85,722 79,821 Risk Weighted Assets 450,680 453,616 454,948 Comparative information has been restated to include the effect of retrospective accounting changes. For more details refer to the 2021 Annual Report Note 1.1. N - Inclusive of treasury shares of $12 million (31 Dec 20: $15 million, 30 Jun 20: $51 million) held by the Group's eligible employee share scheme trusts. Source: Basel III Pillar 3 Disclosures, Commonwealth Bank of Australiab) Figure 2 provides the backtesting results for the VaR of Westpac Banking Corporation ending March 31 2021 (Figure 2a) and March 31 2020 (Figure 2b). Compare the backtesting results from both periods in the context of the COVID-19 pandemic. (15 marks) Figure 2a: Backtesting results for March 31 2021 Traded Risk: Actual Profit and Less vs. Var 01-Oct-2020 to 31-March-2021 Actual Profit 50 and Loss (Sm) 30 20 10 (10) (20) (30) (40) (50) 10 20 30 40 Daily Value at Risk (Sm) Figure 2b: Backtesting results for March 31 2020 O O Traded Risk Actual Profit and Lossys. Var 01-Oct-2019 to 34-Mar-2020 Actual Profit and Loss (1m)] 40 30 20 10 O O (10) (20) (40) (50) 5 10 15 20 25 30 35 40 45 50 Daily Value at Risk ($m) O O Note: Each point on the graph represents 1 day's trading profit or loss. This result is placed on the graph relative to the associated VaR utilisation. The downward sloping line represents the point where a loss is equal to VaR utilisation
