FRM Part II · FRM Exam Part II · High-level Summary of Basel III Reforms
A bank's total RWA calculated using internal models is 600 (in USD millions). Its total RWA under the standardised approaches is 1,000. The fully phased-in output floor is 72.5%. What is the bank's total RWA for capital ratio purposes?
Total RWA is 725. The fully phased-in floor equals 72.5% of standardised RWA of 1,000, which is 725. Because the model-based RWA of 600 is lower than the floor, the floor binds and becomes the RWA used for the capital ratio.
- A600
- B725Correct
- C1,000
- D1,325
Explanation
Floor = 72.5% x 1,000 = 725. Total RWA is the higher of model-based RWA (600) and the floor (725), so 725. Choosing 600 ignores the floor; 1,000 wrongly applies 100% of standardised RWA.
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