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FRM Part II · FRM Exam Part II · Basel III: Finalising Post-crisis Reforms

A bank has Tier 1 capital of 40. On-balance-sheet exposures are 900, derivative exposures (after the standardised netting treatment) are 60, securities financing transaction exposures are 40, and off-balance-sheet items after credit conversion factors are 100. It is not a G-SIB. By how much does its Tier 1 capital exceed the 3% minimum leverage requirement?

Tier 1 capital exceeds the minimum by 7. The exposure measure sums to 1,100 (900 + 60 + 40 + 100), so the 3% requirement is 33. Tier 1 capital of 40 minus 33 leaves an excess of 7, a leverage ratio of about 3.64%.

  1. AShortfall of 0.0; it exactly meets the minimum
  2. BExcess of 10.0
  3. CExcess of 7.0Correct
  4. DExcess of 40.0

Explanation

Exposure measure = 900 + 60 + 40 + 100 = 1,100. Required Tier 1 = 3% x 1,100 = 33. Excess = 40 - 33 = 7. Leverage ratio is 3.64%. Excess of 10 comes from omitting off-balance-sheet items (3% x 1,000 = 30).

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