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

A regulator uses the Basel framework's indicator-based method to identify global systemically important banks (G-SIBs). Which set of categories is used to assess a bank's global systemic importance?

The G-SIB assessment uses five categories: size, interconnectedness, substitutability or financial institution infrastructure, complexity, and cross-jurisdictional activity. These capture how damaging a bank's failure would be to the global system, unlike CAMEL factors or risk-type lists, which measure soundness rather than systemic importance.

  1. ASize, interconnectedness, substitutability/financial institution infrastructure, complexity, and cross-jurisdictional activityCorrect
  2. BCapital adequacy, asset quality, management quality, earnings, and liquidity
  3. CCredit, market, operational, liquidity, and interest rate risk
  4. DLeverage, funding mix, loan growth, profitability, and dividend payout

Explanation

The Basel G-SIB methodology scores banks on five equally weighted categories: size, interconnectedness, substitutability/financial institution infrastructure, complexity, and cross-jurisdictional activity. The other options list CAMEL factors, risk types, or generic financial ratios, none of which form the G-SIB indicator set.

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