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FRM Part II · FRM Exam Part II · High-level Summary of Basel III Reforms

Under the revised SA-CR, how are exposures to unrated corporates generally treated compared with the pre-reform standardised approach?

Unrated corporates generally receive a 100% risk weight under the revised approach, with a lower weight available for investment-grade names where supervisors allow it, and higher weights for riskier cases. They are neither deducted from capital nor all weighted at 150%.

  1. AThey receive a 150% risk weight in all cases
  2. BThey receive a 0% risk weight if the bank has a long relationship with the firm
  3. CThey are assigned a 100% risk weight as the standard treatment, with a lower weight available for investment-grade corporates in jurisdictions that allow it, and a higher weight for high-risk casesCorrect
  4. DThey must be deducted from capital

Explanation

The revised framework keeps a 100% risk weight as the standard for unrated corporates, with a 65% option for investment-grade corporates where supervisors permit and a 85% weight for SMEs; higher weights apply to specified high-risk cases. It is not 150% for all or a capital deduction.

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