FRM Part II · FRM Exam Part II · Capital Regulation Before the Global Financial Crisis
Under the 1988 Basel Accord, which item is classified as Tier 1 capital?
Tier 1 capital under Basel I consists of equity capital and disclosed reserves. Undisclosed reserves, subordinated term debt and general loan loss provisions are Tier 2 supplementary items, which are less permanent or less loss-absorbing.
- AUndisclosed reserves
- BSubordinated term debt with a maturity over five years
- CEquity capital and disclosed reservesCorrect
- DGeneral loan loss provisions
Explanation
Tier 1 comprises shareholders' equity and disclosed reserves. Undisclosed reserves, subordinated debt and general provisions are Tier 2 supplementary capital.
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