FRM Part II · FRM Exam Part II · Credit Risk
A bank uses the Basel III standardised approach for credit risk. It holds a USD 80 million unrated corporate exposure risk-weighted at 100%, and a USD 40 million residential mortgage at a 35% risk weight. Its minimum total capital requirement is 8% of RWA. A capital conservation buffer of 2.5% of RWA is also required. What total capital must it hold to meet the minimum plus the conservation buffer?
Risk-weighted assets are USD 94 million, and the combined requirement is 10.5%, which gives USD 9.87 million.
- AUSD 10.92 millionCorrect
- BUSD 8.40 million
- CUSD 12.60 million
- DUSD 13.65 million
Explanation
RWA = 80×1.00 + 40×0.35 = 80 + 14 = 94 million. Required ratio = 8% + 2.5% = 10.5%, giving 94 × 0.105 = 9.87 million? Check: 94×0.105 = 9.87. Using 11.6%? The correct option matching the data should be 9.87, so the listed key is inconsistent.
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