Fitch Ratings has updated how it derives its Fitch Core Capital measure used to assess a bank’s capitalization.
In calculating FCC the agency’s objective is to arrive at a figure, comparable across countries, measuring a bank’s highest-quality, “going-concern” capital. FCC is broadly similar both to Basel III’s Common Equity Tier 1 measure and Common Capital Tier 1 used in the US but it is not dictated by regulatory capital considerations and may differ from these.
FCC comprises loss-absorbing, “going-concern” capital instruments. FCC starts with equity reported in the bank’s financial statements and deducts items that Fitch does not consider to be readily available to absorb losses in a stress scenario. This may be because they are not fungible, failed to perform as loss-absorbing instruments in the past and are difficult to monetize or where inclusion introduces an element of double-counting.
FCC excludes all hybrid capital instruments. Nevertheless, good-quality hybrid capital is still captured in an ancillary capital ratio, the Fitch Eligible Capital (FEC) ratio. FEC adds a bank’s hybrid securities to FCC to the extent that they receive “equity credit”. FEC represents a secondary measure of bank capitalization for Fitch.
For the detailed description, see Fitch Core Capital: The Primary Measure of Bank Capitalisation