Credit Risk Management Basel Regulatory Framework 3

Question 1

Which Basel framework introduced the concept of Operational Risk capital charges?

Accepted Answer

Basel II

Answer

Basel II introduced explicit capital requirements for operational risk for the first time, alongside credit and market risk charges.

Question 2

What does 'risk-weighted assets' (RWA) measure in the context of Basel capital adequacy?

Accepted Answer

Assets adjusted for credit, market, and operational risk

Answer

RWA adjusts a bank's assets by their relative riskiness, incorporating credit, market, and operational risk, to determine required regulatory capital.

Question 3

Under Basel III's 'output floor,' IRB-calculated RWAs cannot fall below what percentage of Standardized Approach RWAs?

Accepted Answer

72.5%

Answer

The Basel III output floor sets a minimum of 72.5% of Standardized Approach RWAs for banks using internal models, limiting excessive capital reduction.

Question 4

What is the definition of Tier 2 capital under Basel III?

Accepted Answer

Subordinated debt and general loan loss provisions

Answer

Tier 2 capital includes instruments like subordinated debt and general provisions that provide a secondary loss-absorbing capacity.

Question 5

Which of the following is a key feature of the G-SIB (Global Systemically Important Bank) surcharge?

Accepted Answer

It requires additional CET1 based on systemic importance scores

Answer

G-SIBs must hold an additional CET1 surcharge of 1%–3.5% based on their systemic importance score, which covers size, interconnectedness, and complexity.

Credit Risk Management Practice Test

Credit Risk Management Practice Test

Credit Risk Management Basel Regulatory Framework 3