(i) Risk categories and risk indicators

The DGS should calculate the ARW for an individual member institution based on a set of risk indicators from each of the following five risk categories:

• a. Capital: indicators should reflect the level of loss-absorbing capacity of the member institution.
• b. Liquidity and funding: indicators should measure the member institution’s ability to meet its short- and long-term obligations as they come due without adversely affecting its financial condition.
• c. Asset quality: indicators should measure the extent to which the member institution is likely to experience credit losses.
• d. Business model and management: indicators should measure the risk stemming from the member institution’s current business model and strategic plans, the quality of the member institution’s internal governance and in ternal controls.
• e. Potential losses for the DGS: indicators should reflect the potential losses for the DGS stemming from a DGS intervention, which the DGS is unlikely to recover.

Core risk indicators

Within each risk category, the DGS should include the core risk indicators specified in Table 1 in the calculation method. As an exception, the competent authority in cooperation with the designated authority may exclude or allow the DGS to exclude, with regard to specific types of institutions, a core indicator upon justification that this indicator is unavailable because of the legal characteristics or supervisory regime of such institutions.

Where the competent authority in cooperation with the designated authority or the DGS remove a core risk indicator for a specific type of member institution, they should use the most appropriate proxy for the removed indicator. They should ensure that the risks posed by the institution to the DGS are reflected in other indicators used. They should also take into account the need for a level playing field with other member institutions for which the excluded indicator is available.

DGS should apply either of the Capital Coverage Ratio or the Common Equity Tier 1 ratio as a core indicator.