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Capital management of financial institutions and the related tax issues


Against the background of the first anniversary of the global financial crisis, the leaders of the Group of 20 countries and the European Union met in September 2009 and agreed on basic principles for a set of reforms to strengthen the international financial regulatory system. These principles are now known as Basel III. The Basel III reforms cover the capital, liquidity and funding positions of banks. This article is focused on capital requirements. The article focuses on bank capital and bank capital management as the principles are similar for insurers, although relevant issues for insurers are also mentioned.

The article opens with an introduction to bank and insurance capital and the Basel III capital reforms. The article then discusses Tier 1 and Tier 2 securities, and the interaction of bank capital with ratings capital. The remainder of the article then examines tax issues for bank issuers, insurance issuers and investors.

Author profiles

Photo of author, Tony FROST Tony Frost FTIA has been a Director with the Sydney office of Greenwoods & Freehills since 2003. Tony has more than 20 years experience in tax, with a focus on financial services and financial transactions. Tony has advised clients on a wide range of tax matters, including innovative financial products, structured finance, mergers and acquisitions, cross-border dealings, transfer pricing, tax audits and negotiations with the Australian Taxation Office. Prior to joining the firm in 2003, Tony had been a Tax Partner for seven years with one of the major international accounting firms. Earlier in his career, Tony spent five years with Westpac Banking Corporation. He has over 20 years experience in tax and has advised clients on a wide range of issues, but with an emphasis on financial products and financial institutions. Tony has had significant involvement in the tax reform process via industry and professional bodies. In particular, Tony has written or coordinated many submissions over the last 18 years for the banking industry, including on the TOFA reforms. Tony lectures on the taxation of financial transactions in the Masters of Law course at the University of Sydney and is a regular speaker and writer on this subject for the Taxation Institute and other organisations.
Current at 11 February 2009
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