FRM Part II · FRM Exam Part II · Capital Regulation Before the Global Financial Crisis
A bank using the Basel II standardized approach holds a corporate loan to a firm rated A+ to A- by an eligible external rating agency. Under the Basel II standardized approach, which risk weight applies to this exposure?
A corporate exposure rated A+ to A- receives a 50% risk weight under the Basel II standardized approach. The 20% weight is reserved for AAA to AA- names, while 100% applies to BBB+ to BB- and unrated corporates, and 150% to credits rated below BB-.
- A20%
- B50%Correct
- C100%
- D150%
Explanation
Under the Basel II standardized approach, corporate claims rated A+ to A- carry a 50% risk weight. AAA to AA- corporates get 20%, BBB+ to BB- get 100%, and below BB- get 150%. The 100% weight is the one used for unrated corporates and BBB+ to BB- credits, so it is wrong here.
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