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Capital Adequacy

Regulatory Intervention Issues

172. The Tripartite Group considered the following questions:

- If the group regulated companies meet their solo capital requirements, but leave a deficiency at group level, which part of the group should take responsibility? Is there a presumption that it should be the parent company of the group?

- If there is a capital deficiency at the solo level, is there a presumption that the deficiency should be dealt with there?

- What supervisory issues, if any, arise?

173. It was generally agreed that, where a capital deficit occurs at group level, the parent regulator (or lead regulator, where the parent itself is unregulated) is responsible for ensuring that it is corrected and that, where the deficit occurs at subsidiary level, the subsidiary regulator is responsible. If, however, the subsidiary cannot comply with its regulator's requirements, then it may be that the parent regulator would need to step in and ensure that the parent itself took responsibility. Much would depend on the size of the participation, on the existence of inter­company guarantees and on the expectations of regulators, quite apart from considerations of commercial self­interest. As to who should take regulatory action when all regulated group companies fulfil individual capital requirements, but there is considered to be excessive leverage in an unregulated holding company, the sub­group's view was that the lead regulator would need to raise questions about the capital position of the holding company, with possible implications for the regulated company's continued authorisation. It was not considered possible to prescribe answers to all issues of intervention other than to say that the supervisors involved needed to agree upon a plan of action.

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