INTM267762 - The attribution of capital to foreign banking permanent establishments in the UK: The approach in determining an adjustment to funding costs - STEP 3: Determining the equity capital: Tiers 1, 2 and 3
CTA09/S21(2)(b) provides that it shall be assumed that a UK permanent establishment has the equity capital which it would have if it were a distinct and separate enterprise, engaged in the same, or similar activities under the same or similar circumstances.
The term 鈥榚quity capital鈥� has not been defined in the legislation since it is generally well understood. In the banking sector the capital supporting a bank鈥檚 activities and risks is split into three categories - Tiers 1, 2 and 3. While Tier 1 will consist largely of equity capital and Tiers 2 and 3 largely of loan capital, the extent to which items in these tiers will be regarded as equity or loan capital for the purposes of CTA09/Part 2/Chapter 4 is set out in INTM267763 (Tier 1), INTM267764 (Tier 2) and INTM267765 (Tier 3).