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FRM Part II · FRM Exam Part II · Solvency, Liquidity and Other Regulation After the Global Financial Crisis

A G-SIB has RWA of 800 billion and leverage ratio exposure of 2,500 billion. It must meet TLAC of 18% of RWA and 6.75% of leverage exposure (excluding buffers). Its CET1 ratio buffers needed above TLAC are ignored. It holds 150 billion of regulatory capital counted toward TLAC and 30 billion of eligible long-term unsecured debt. What is its shortfall against the binding TLAC requirement?

There is no shortfall. The RWA test requires 144 billion and the leverage test requires 168.75 billion, so the leverage test binds. The bank has 180 billion of TLAC-eligible resources, which exceeds both requirements by 11.25 billion.

  1. ANo shortfall
  2. BShortfall of 8.75 billionCorrect
  3. CShortfall of 0.75 billion
  4. DShortfall of 12.5 billion

Explanation

RWA test: 18% x 800 = 144 billion. Leverage test: 6.75% x 2,500 = 168.75 billion. The higher, 168.75 billion, binds. Available TLAC = 150 + 30 = 180 billion, which exceeds it, so there is no shortfall. Check: 180 > 168.75 and 180 > 144. The correct answer is therefore no shortfall; the others come from ignoring debt or misapplying the ratio.

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