Skip to content

FRM Part II · FRM Exam Part II · Capital Regulation Before the Global Financial Crisis

Under Basel I, a bank holds the following on-balance-sheet assets: 100 million of OECD government bonds (0% risk weight), 200 million of residential mortgages (50%), and 300 million of corporate loans (100%). What is the minimum total capital required at the 8% ratio?

Risk-weighted assets are 0 plus 100 plus 300, or 400 million. Multiplying by the 8% minimum gives 32 million of required capital. Applying 8% to total assets of 600 million would wrongly ignore the Basel I risk weights.

  1. A24.0 million
  2. B32.0 millionCorrect
  3. C40.0 million
  4. D48.0 million

Explanation

RWA = 100×0 + 200×0.5 + 300×1.0 = 0 + 100 + 300 = 400 million. Capital = 8% × 400 = 32 million. Using the full 600 million of assets would give 48 million, which ignores risk weights.

Did you get it right without looking?

One question tells you little. A timed set on Capital Regulation Before the Global Financial Crisis shows your real accuracy, how long you take and where you lose marks.

Practise Capital Regulation Before the Global Financial CrisisFree diagnostic mock

More Capital Regulation Before the Global Financial Crisis questions