W 6

Question 1

What are the regulatory goals of Basel III?

Answer 1

▪ Increase the quality of capital required
▪ Increase the amount of capital required
▪ Reduce procyclicality

Question 2

Under Basel III Common Equity Tier (CET1) should be at least … of RWA

Answer 2

4.5%

Question 3

Under Basel III Common Equity Tier I capital should be at least … of RWA

Answer 3

6%

Question 4

Under Basel III Common Equity Tier I&II capital should be at least … of RWA

Answer 4

8%

Question 5

If capital goes below normal requirements then the bank:

Answer 5

The Bank cannot pay bonuses!
The Bank cannot buy back its shares!
The Bank must retain a % of profits, instead of paying dividends!

Question 6

What does the Expected Shortfall (ES) measure?
(A) The expected market return, conditional on having a crisis
(B) The difference between the capital needed and required, conditional on having a crisis
(C) The correlation between market’s and stock’s value at risk, conditional on having a crisis
(D) The market volatility, conditional on having a crisis

Answer 6

The expected market return, conditional on having a crisis

Question 7

Which of the following is most likely to be a caveat of imposing a maximum leverage ratio for banks?
(A) It might increase the impact of model errors
(B) It might increase the impact of measurement errors
(C) It might increase the potential for regulatory arbitrage
(D) It might increase the incentives toward extra risk taking

Answer 7

It might increase the incentives toward extra risk taking

Question 8

What is the Net Stable Funding Ratio (NSFR)?

Answer 8

A measure introduced in Basel III which aims to promote resilience over a longer time horizon by creating incentives for banks to fund their activities with more stable sources of funding on an ongoing basis.