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FRM Part II · FRM Exam Part II · High-level Summary of Basel III Reforms

A risk officer at a mid-sized bank is briefing the board on the 2017 Basel III reforms that finalised the post-crisis framework. Which statement best describes a primary objective of these reforms?

The reforms aim to reduce excessive variability in risk-weighted assets and restore credibility and comparability of risk-based capital ratios. They keep the leverage ratio and buffers as complementary tools rather than eliminating them or replacing risk-based requirements.

  1. ATo reduce excessive variability in risk-weighted assets and restore credibility in the calculation of risk-weighted assetsCorrect
  2. BTo eliminate the use of leverage ratio requirements for internationally active banks
  3. CTo replace all risk-based capital requirements with a single leverage-based measure
  4. DTo remove national discretion by abolishing all supervisory capital buffers

Explanation

The finalised reforms were designed to reduce excessive variability of risk-weighted assets and improve comparability and credibility of risk-based capital ratios. They complement, not replace, the leverage ratio and buffers, so the other options misstate the framework.

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