FRM Part II · FRM Exam Part II · Capital Structure in Banks
Under Basel III, which instrument may be used to satisfy the capital conservation buffer?
Common Equity Tier 1 capital is used to meet the capital conservation buffer. Basel III requires buffers to consist of the highest-quality loss-absorbing capital, while AT1, Tier 2 and senior debt cannot satisfy them.
- ATier 2 subordinated debt
- BAdditional Tier 1 contingent convertibles
- CCommon Equity Tier 1 capitalCorrect
- DSenior unsecured bonds
Explanation
The conservation buffer, countercyclical buffer and G-SIB surcharge must be met with CET1. AT1 and Tier 2 count toward Tier 1 and total requirements but not buffers. Senior debt is not regulatory capital.
Did you get it right without looking?
One question tells you little. A timed set on Capital Structure in Banks shows your real accuracy, how long you take and where you lose marks.
More Capital Structure in Banks questions
- A bank's economic capital model estimates a one-year 99.9% credit loss quantile of USD 1,200 million on a loan portfolio whose expected loss…
- Under Basel III, a bank that is not a G-SIB has a 4.5% CET1 minimum, a 2.5% capital conservation buffer and a 1.0% countercyclical buffer cu…
- A bank has two business units. Unit A has standalone economic capital of 60 million and Unit B has 40 million. Because of diversification, t…
- A bank's risk team defines economic capital for its credit portfolio as the amount needed to absorb unexpected losses at a chosen confidence…
- A bank's treasurer is explaining to the board why a bank needs equity capital even though depositors are protected by deposit insurance and …
- A bank's economic capital model shows a 99.9% one-year credit loss quantile of USD 900 million and an expected loss of USD 250 million. Prov…