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, which of the following is NOT a criterion for instruments to qualify as Tier 2 capital?
Answer: Must be perpetual with no incentive to redeem
The perpetual, no-incentive-to-redeem criterion applies to AT1 capital; Tier 2 instruments may have a fixed maturity of at least five years.
A bank subject to the Comprehensive Capital Analysis and Review (CCAR) must demonstrate capital adequacy under which type of scenario?
Answer: Adverse and severely adverse stress scenarios
CCAR requires large bank holding companies to demonstrate they can maintain adequate capital under both adverse and severely adverse macroeconomic stress scenarios defined by the Fed.
Which measure did Basel III introduce to address the risk of large banks having insufficient liquidity for a 30-day stress period?
Answer: Liquidity Coverage Ratio (LCR)
The LCR requires banks to hold sufficient high-quality liquid assets (HQLA) to cover net cash outflows over a 30-day stress scenario.
Under the advanced measurement approach (AMA) for operational risk, banks must capture losses at a confidence level of:
Answer: 99.9% over a one-year horizon
The AMA requires banks to estimate operational risk capital at a 99.9% confidence level over a one-year holding period.
The Dodd-Frank Act's Collins Amendment requires that U.S. bank capital standards may not be set:
Answer: Lower than the generally applicable risk-based capital requirements
The Collins Amendment establishes a floor ensuring that capital requirements under advanced approaches cannot fall below standardized approach minimums.
Which of the following best describes 'Pillar 2 capital add-ons' in the Basel framework?
Answer: Supervisory-imposed capital above Pillar 1 minimums based on individual bank risk assessments
Pillar 2 add-ons are supervisory authority-imposed requirements reflecting bank-specific risks not fully captured by Pillar 1's standardized charges.
Under market risk capital rules, Value-at-Risk (VaR) for regulatory capital must be calculated at what confidence level and holding period?
Answer: 99% confidence, 10-day holding period
Regulatory VaR for market risk capital is calculated at 99% confidence over a 10-day holding period under the standardized and internal models approaches.