CRA Regulatory Capital Requirements 2

Question 1

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

Accepted Answer

4.5%

Answer

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

Question 2

Which Basel III buffer is designed to absorb losses during periods of excessive credit growth?

Accepted Answer

Countercyclical capital buffer

Answer

The countercyclical capital buffer (CCyB) is activated by national regulators during periods of excess credit growth to build resilience.

Question 3

What does the Supplementary Leverage Ratio (SLR) measure?

Accepted Answer

Tier 1 capital relative to total leverage exposure

Answer

The SLR measures Tier 1 capital as a percentage of total leverage exposure, which includes both on- and off-balance-sheet items.

Question 4

A bank's Tier 1 capital is $10 billion and its risk-weighted assets are $125 billion. What is its Tier 1 capital ratio?

Accepted Answer

8.0%

Answer

Tier 1 capital ratio = $10B / $125B = 8.0%, which exceeds the 6% minimum requirement.

Question 5

Which of the following instruments qualifies as Additional Tier 1 (AT1) capital under Basel III?

Accepted Answer

Contingent convertible bonds (CoCos)

Answer

CoCos that absorb losses by converting to equity or writing down qualify as AT1 capital under Basel III.

(CRA) Certified Risk Analyst Practice Test