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CS Professional · Banking and Insurance - Laws and Practice · Risk Management in Banks and Basel Accords

Kaveri Bank is implementing Basel II. Its Chief Risk Officer explains that, unlike Basel I, the new framework rests on three mutually reinforcing pillars. Which of the following correctly pairs the pillar with its content?

Pillar 3 of Basel II is market discipline, achieved through public disclosure of capital and risk information. Pillar 1 covers minimum capital requirements and Pillar 2 the supervisory review process. Leverage ratio limits belong to Basel III, not Basel II.

  1. APillar 1 - supervisory review process
  2. BPillar 2 - minimum capital requirements
  3. CPillar 3 - market discipline through disclosuresCorrect
  4. DPillar 3 - leverage ratio limits

Explanation

Basel II: Pillar 1 is minimum capital requirements for credit, market and operational risk; Pillar 2 is the supervisory review process (ICAAP); Pillar 3 is market discipline through public disclosure. The other options swap the pillars or import a Basel III concept.

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