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

A regulator publishes an annual list of global systemically important banks (G-SIBs) and places each in a bucket. What is the primary consequence of a bank being placed in a higher bucket under the Basel framework?

A higher G-SIB bucket results in a higher CET1 capital surcharge. Buckets reflect the bank's systemic importance score, and more systemically important banks must hold more loss-absorbing common equity. The framework adds requirements rather than relaxing leverage, TLAC or liquidity rules.

  1. AA higher common equity Tier 1 capital surchargeCorrect
  2. BA lower minimum leverage ratio requirement
  3. CExemption from total loss-absorbing capacity requirements
  4. DA reduced liquidity coverage ratio requirement

Explanation

The G-SIB framework assigns banks to buckets based on indicator scores, and each bucket carries an additional CET1 surcharge that rises with systemic importance. The surcharge adds to capital requirements; it does not reduce leverage, TLAC or liquidity requirements, so the other options are wrong.

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