FRM Part II · FRM Exam Part II · High-level Summary of Basel III Reforms
Under the Basel III 2017 reforms, the output floor is phased in from 50% to 72.5% in annual steps of 5 percentage points beginning at 50% in the first year of implementation. Bank Alpha's internally modelled RWA is 600 and its standardised-approach RWA is 1,000. Assuming no other adjustments, what is the bank's RWA in the year when the floor is 60%?
RWA is 600. The floor at 60% equals 0.60 times the standardised RWA of 1,000, which is 600. Since the modelled RWA is also 600, the floor is exactly met and not binding, so the bank's RWA remains unchanged at 600.
- A600Correct
- B650
- C700
- D1,000
Explanation
At a 60% floor the floor amount is 0.60 × 1,000 = 600. Modelled RWA of 600 equals the floor, so RWA stays 600. A 65% floor would give 650, but that is the following year's step, and 70% would give 700.
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