Regulatory Capital Requirements Flashcards
7 cards from real CRA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Regulatory Capital Requirements flashcards as text
Under Basel III, what is the minimum Common Equity Tier 1 (CET1) capital ratio required of banks?
Answer: 4.5%
Basel III requires banks to hold a minimum CET1 ratio of 4.5% of risk-weighted assets.
Which Basel III buffer is designed to absorb losses during periods of excessive credit growth?
Answer: Countercyclical capital buffer
The countercyclical capital buffer (CCyB) is activated by national regulators during periods of excess credit growth to build resilience.
What does the Supplementary Leverage Ratio (SLR) measure?
Answer: Tier 1 capital relative to total leverage exposure
The SLR measures Tier 1 capital as a percentage of total leverage exposure, which includes both on- and off-balance-sheet items.
A bank's Tier 1 capital is $10 billion and its risk-weighted assets are $125 billion. What is its Tier 1 capital ratio?
Answer: 8.0%
Tier 1 capital ratio = $10B / $125B = 8.0%, which exceeds the 6% minimum requirement.
Which of the following instruments qualifies as Additional Tier 1 (AT1) capital under Basel III?
Answer: Contingent convertible bonds (CoCos)
CoCos that absorb losses by converting to equity or writing down qualify as AT1 capital under Basel III.
Under the standardized approach, a residential mortgage loan with an LTV of 60% receives a risk weight of:
Answer: 35%
Under the Basel standardized approach, well-secured residential mortgages typically receive a 35% risk weight.
What is the primary purpose of the Net Stable Funding Ratio (NSFR)?
Answer: Promote resilient longer-term funding structures over a one-year horizon
The NSFR requires banks to maintain stable funding relative to illiquid assets over a one-year time horizon.