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FRM Part II · FRM Exam Part II · Solvency, Liquidity and Other Regulation After the Global Financial Crisis

A bank is identified as a G-SIB and placed in a bucket carrying a higher-loss-absorbency (G-SIB) surcharge of 2.0% of risk-weighted assets. The bank's minimum CET1 requirement is 4.5% and its capital conservation buffer is 2.5%. Ignoring any countercyclical buffer, what is the total CET1 ratio it must hold to avoid restrictions on distributions?

The bank needs a CET1 ratio of 9.0%: the 4.5% minimum plus the 2.5% conservation buffer plus the 2.0% G-SIB surcharge. Omitting the surcharge would give 7.0%, which understates the requirement for a systemically important bank.

  1. A7.0%
  2. B9.0%Correct
  3. C11.0%
  4. D9.5%

Explanation

CET1 required = 4.5% minimum + 2.5% conservation buffer + 2.0% G-SIB surcharge = 9.0%. The 7.0% figure omits the surcharge. 11.0% double counts by adding extra amounts, and 9.5% is not supported by any sum of the components.

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