European Union Lecture on Ensuring Banking Stability (part 2) Flashcards
1
Q
What do higher buffers lead to in banking systems?
A
It will decrease moral hazard in the banking system
2
Q
What are the elements of Basel I?
A
- Capital requirements for assets divided into credit risk buckets
- Also capital requirements for off-balance sheet exposures
- OBS exposures are converted into on-balance sheet credit equivalents
- Guarantees for securities issued by special purpose vehicles investing in subprime mortgage loans
3
Q
What does Basel 2 address?
A
The regulatory capital arbitrage problem of Basel 1
4
Q
What is the main element of Basel II?
A
- Increased risk differentiation by allowing banks to design internal ratings based systems
5
Q
What is the main problem of Basel II?
A
Potentially perverse incentives for underestimating, deliberately or undeliberately, credit risk profile and capital need.
6
Q
What are main elements of Basel III?
A
- Basel 3 increases core equity ratio to 7%
- Additional counter-cyclical capital requirements
- Narrower definition of qualifying regulatory capital
- Higher capital requirements for Systemically Important Financial Institutions (SiFis)
7
Q
A
8
Q
A
