The example is presented below: Assuming that the notional of an instrument qualified as Tier 2 capital equals PLN 100 m. The first year of last five years has just passed (four years left to maturity), so the institution is required to amortize the nominal using the rate of 20%, i.e. PLN 20 m. After the amortization the institution prepays the portion of PLN 20 m (covering the nominal that has been amortized). According to the interpretation adopted by the institution, the amount of the instrument classified as Tier 2 capital is still 80 m (PLN 100m x 80%), and thus, the repayment PLN 20 m has no effect on it. The situation is similar in case of phased-out limits, as referred to in Article 486(5). The above question is backed by the Bank of International Settlements which issued an analogous opinion on calculation of own funds with respect to phased-out limits and prepayment (source: http://www.bis.org/publ/bcbs211.pdf (15p), Basel Committee on Banking Supervision, Basel III definition of capital – Frequently asked questions, December 2011 (update of FAQs published in October 2011). Question: Assume that on 1 January 2013 a bank has $100m of non-compliant Tier 1 securities outstanding. By 1 January 2017, the capital recognition has been reduced to 50% (10% per year starting at 90% on 1 January 2013). Now assume that $50m of the Tier 1 securities have been called between 2013 and end of 2016 - leaving $50m outstanding. Does the transitional arrangement established by paragraph 94 (g) mean the institution can fully recognize the remaining $50m of capital on 1 January 2017? Answer: Yes.