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FRM Part II · FRM Exam Part II · High-level Summary of Basel III Reforms

A bank's internal-model total RWA is 600 and its total RWA under the standardised approaches is 1,000. The fully phased-in output floor is 72.5%. Total capital is 90. What is the bank's total capital ratio on the floored RWA?

The ratio is about 12.4%. The floor equals 72.5% of 1,000, or 725, which is higher than the model RWA of 600, so 725 binds. Dividing capital of 90 by 725 gives 12.41%, rather than 15% on model RWA.

  1. A15.0%
  2. B12.4%Correct
  3. C9.0%
  4. D10.0%

Explanation

The floor is 0.725 × 1,000 = 725, which exceeds 600, so floored RWA is 725. The ratio is 90/725 = 12.41%. Using 600 gives 15.0%, ignoring the floor. Using 1,000 gives 9.0%, which applies the standardised RWA in full instead of the 72.5% floor.

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