FRM Part I · FRM Exam Part I · Banks
Which statement best describes the purpose of the Basel III countercyclical capital buffer?
The countercyclical capital buffer allows national regulators to raise capital requirements when credit growth is excessive, building capital in good times that can absorb losses in downturns. It is distinct from liquidity, leverage, and G-SIB surcharge measures.
- AIt requires banks to hold extra liquid assets against 30-day outflows
- BIt lets regulators raise capital requirements during periods of excessive credit growthCorrect
- CIt sets a minimum ratio of Tier 1 capital to unweighted total exposure
- DIt applies a surcharge only to globally systemically important banks
Explanation
The countercyclical buffer is imposed by national authorities when credit growth is excessive, to build capital that can absorb losses in downturns. The liquidity coverage ratio addresses 30-day outflows, the leverage ratio uses unweighted exposure, and the G-SIB surcharge targets systemic banks.
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