CRA Regulatory Capital Requirements 3

Question 1

Under Basel II/III's Internal Ratings-Based (IRB) approach, which parameter represents the proportion of exposure lost if a borrower defaults?

Accepted Answer

Loss Given Default (LGD)

Answer

LGD (Loss Given Default) measures the fraction of the exposure that the bank expects to lose after recovery efforts.

Question 2

Global Systemically Important Banks (G-SIBs) are subject to an additional capital surcharge of up to:

Accepted Answer

2.5%

Answer

G-SIBs face a CET1 surcharge ranging from 1.0% to 3.5%, with a 4.5% bucket reserved for future use, totaling up to 3.5% for most banks.

Question 3

Which component of the Basel III framework specifically addresses the risk of excessive bank leverage during periods of growth?

Accepted Answer

Leverage Ratio

Answer

The Basel III Leverage Ratio (minimum 3%) acts as a backstop to risk-based capital measures, limiting excessive balance sheet leverage.

Question 4

Under the standardized approach for credit risk, what risk weight is assigned to sovereign exposures rated AA- or better?

Accepted Answer

0%

Answer

Sovereign exposures from countries rated AA- or better receive a 0% risk weight under the standardized approach.

Question 5

Which Pillar of the Basel framework covers market discipline through public disclosure requirements?

Accepted Answer

Pillar 3

Answer

Pillar 3 of Basel requires banks to publicly disclose their risk exposures, capital adequacy, and risk management practices to enhance market discipline.

(CRA) Certified Risk Analyst Practice Test

(CRA) Certified Risk Analyst Practice Test

CRA Regulatory Capital Requirements 3