Banking Risk Management 2

Question 1

Under Basel III, what is the minimum Common Equity Tier 1 (CET1) capital ratio required for banks?

Accepted Answer

4.5%

Answer

Basel III requires banks to hold a minimum CET1 capital ratio of 4.5% of risk-weighted assets.

Question 2

Which risk metric measures the maximum expected loss over a given time period at a specified confidence level?

Accepted Answer

Value at Risk (VaR)

Answer

Value at Risk (VaR) estimates the maximum potential loss over a specific time horizon at a given confidence level.

Question 3

A bank's net interest margin (NIM) compresses when short-term rates rise faster than long-term rates. This is an example of which risk?

Accepted Answer

Interest rate risk

Answer

Interest rate risk arises when changes in interest rates adversely affect a bank's net interest income or asset values.

Question 4

What does a bank's Liquidity Coverage Ratio (LCR) measure?

Accepted Answer

Adequacy of high-quality liquid assets to survive a 30-day stress scenario

Answer

The LCR requires banks to hold enough high-quality liquid assets (HQLA) to cover net cash outflows during a 30-day stress period.

Question 5

Which internal control framework is most commonly referenced by U.S. banks for assessing risk management and internal controls?

Accepted Answer

COSO ERM Framework

Answer

The COSO Enterprise Risk Management (ERM) Framework is the dominant standard U.S. banks use to evaluate internal controls and risk governance.

Banking Practice Test