BKLM323530 - Chargeable equity and liabilities: relevant entities and groups: relevant non-banking groups: joint ventures: example

The provisions regarding joint ventures were repealed for chargeable periods ending on or after 1 January 2021.

Bank A is a UK banking group, and Bank B is a foreign banking group which contains a UK bank. They form a joint venture, C, which itself is the holding company of a UK bank.

Bank A

Bank A's consolidated accounts use proportionate consolidation to account for its interest in JV C. This means that A's consolidated accounts include A's share of the JV liabilities (in this case 50%). These liabilities are included within A's chargeable liabilities for the bank levy.

Bank B

Bank B's consolidated IAS accounts use the equity method to account for its interest in JV C. This means that it recognises an investment held at cost. It does not recognise any liabilities of the JV in its consolidated accounts.

Bank B does not produce consolidated accounts for its UK sub-group, and thus must prepare an aggregation of its UK interests to determine its chargeable liabilities and equity for the purposes of the bank levy.

As Bank B's consolidated accounts do not recognise any liabilities of the JV, in accordance with paragraph 43 of Schedule 19, B's calculation of chargeable liabilities and equity will also ignore B's share of the JV's liabilities.

Joint venture C

JV C is a parent, and is not a subsidiary of any other entity (because neither Bank A nor Bank B controls C). It meets the definition of a UK banking group and therefore is chargeable to the bank levy in its own respect in the normal way.

However, the liabilities and equity reported in C's consolidated accounts would also, without the provisions of paragraph 44 of Schedule 19, be subject to the bank levy.

Paragraph 44 provides that where the liabilities of the JV have already been included in the liabilities of another group subject to the bank levy, those liabilities should be excluded from C's calculation of chargeable liabilities.

Thus if C's consolidated accounts recognised £40bn of liabilities, and A's consolidated accounts recognised a 50% share of those liabilities, C would reduce its chargeable liabilities by £20bn, to prevent those liabilities being subject to a double charge to the bank levy.