Credit Risk Management Basel Regulatory Framework 2

Question 1

What is the capital conservation buffer (CCB) requirement under Basel III?

Accepted Answer

2.5%

Answer

Basel III mandates a 2.5% capital conservation buffer on top of minimum CET1, intended to absorb losses during financial stress.

Question 2

Under CECL (Current Expected Credit Loss) accounting in the US, when must lifetime expected losses be recognized?

Accepted Answer

At loan origination, for the full expected life

Answer

CECL requires financial institutions to recognize lifetime expected credit losses at origination, replacing the incurred loss model.

Question 3

What is the risk weight for unrated corporate exposures under the Basel II Standardized Approach?

Accepted Answer

100%

Answer

Unrated corporate claims receive a 100% risk weight under the Basel Standardized Approach, reflecting uncertain credit quality.

Question 4

Which Basel III requirement specifically targets short-term liquidity resilience?

Accepted Answer

Liquidity Coverage Ratio (LCR)

Answer

The LCR requires banks to hold sufficient high-quality liquid assets (HQLA) to survive a 30-day stress scenario, addressing short-term liquidity risk.

Question 5

Under the Basel IRB approach, Unexpected Loss (UL) is covered by what?

Accepted Answer

Regulatory capital

Answer

Regulatory capital under Basel IRB is designed to cover Unexpected Loss — losses that exceed Expected Loss — to a high confidence level.

Credit Risk Management Practice Test

Credit Risk Management Practice Test

Credit Risk Management Basel Regulatory Framework 2