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

A global systemically important bank (G-SIB) in a bucket with a 1.5% higher loss absorbency surcharge has RWA of USD 800 billion and total leverage exposure of USD 2,500 billion. Requirements: 4.5% minimum CET1, 2.5% conservation buffer, 0% countercyclical buffer. The leverage ratio minimum is 3% plus a buffer equal to 50% of the G-SIB surcharge. Its CET1 is USD 80 billion and Tier 1 is USD 95 billion. Which statement is correct?

The bank meets both. Its CET1 ratio is 10% against an 8.5% requirement, and its leverage ratio is 95 divided by 2,500, or 3.80%, against a 3.75% requirement (3% plus half the 1.5% surcharge).

  1. AIt meets the risk-based CET1 requirement but fails the leverage requirementCorrect
  2. BIt fails the risk-based CET1 requirement but meets the leverage requirement
  3. CIt meets both requirements
  4. DIt fails both requirements

Explanation

CET1 requirement = 4.5 + 2.5 + 1.5 = 8.5% of 800 = 68 billion; CET1 of 80 billion (10%) passes. Leverage requirement = 3% + 0.75% = 3.75% of 2,500 = 93.75 billion; Tier 1 of 95 billion (3.80%) passes. So it meets both; the option claiming failure of leverage wrongly omits the buffer or miscomputes.

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