FRM Part II · FRM Exam Part II · High-level Summary of Basel III Reforms
A bank's CRO reviews the impact of the finalised reforms. Before the floor, model RWA is 520 and standardised RWA is 900. Capital is 65. The floor applies fully at 72.5%. The bank must keep a CET1-equivalent ratio of 10% on floored RWA. Using only the floor, how much additional capital is needed?
The bank needs 0.25 more capital. The floor gives RWA of 0.725 × 900 = 652.5, which exceeds the model RWA of 520. At a 10% requirement this means 65.25 of capital; the bank holds 65, leaving a shortfall of 0.25.
- A0.0
- B0.25Correct
- C3.5
- D7.5
Explanation
Floor RWA = 0.725 × 900 = 652.5, higher than 520. Required capital = 10% × 652.5 = 65.25. Capital held is 65, so shortfall is 0.25. Using model RWA would need 52, so no shortfall; using 900 would need 90, giving a 25 shortfall.
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