FRM Part II · FRM Exam Part II · High-level Summary of Basel III Reforms
A bank's standardised total RWA is 2,000 and its internal-model total RWA is 1,000. A national supervisor applies the Basel III transitional cap on the increase in RWA resulting from the output floor, set at 25% of RWA before the floor. In a year when the floor is 70%, what RWA does the bank report?
The reported RWA is 1,250. The floor would lift RWA to 1,400, but the transitional cap limits the increase to 25% of the pre-floor RWA of 1,000, which is 250, so the bank reports 1,000 plus 250.
- A1,250Correct
- B1,400
- C1,000
- D1,500
Explanation
Unconstrained floored RWA is max(1,000, 0.70 x 2,000 = 1,400) = 1,400, an increase of 400 or 40%. The cap limits the increase to 25% of 1,000 = 250, giving 1,250. 1,400 ignores the cap.
Did you get it right without looking?
One question tells you little. A timed set on High-level Summary of Basel III Reforms shows your real accuracy, how long you take and where you lose marks.
More High-level Summary of Basel III Reforms questions
- A bank has Tier 1 capital of 24 billion and a total exposure measure of 600 billion. The minimum Basel III leverage ratio is 3%. Management …
- A bank under review computes CVA capital for a derivatives book. Which transaction is excluded from the scope of the CVA risk capital charge…
- Under the Basel III post-crisis reforms, the output floor is intended primarily to achieve which of the following?
- Under the Basel III leverage ratio framework, which of the following correctly describes the minimum requirement and the measure of capital …
- Under the Basel III finalisation framework, a bank's output floor requires total RWA to be at least a stated percentage of RWA computed usin…
- Under the Basel III reforms finalised in 2017, which statement best describes the treatment of operational risk capital for banks?