FRM Part II · FRM Exam Part II · High-level Summary of Basel III Reforms
A bank's internal-model RWA total is 600 and its RWA under the standardised approaches is 1,000. Ignoring transitional arrangements, with a 72.5% output floor, what RWA must the bank use for its capital ratio?
The bank must use RWA of 725. The output floor is 72.5% of standardised RWA of 1,000, which equals 725, and this exceeds the internal-model figure of 600, so the floor binds and sets the RWA used for the capital ratio.
- A725Correct
- B600
- C1,000
- D1,725
Explanation
Floor = 0.725 x 1,000 = 725. Since internal-model RWA of 600 is below 725, the floored figure of 725 applies. Using 600 ignores the floor; 1,000 wrongly applies 100% of standardised RWA.
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