Basel Norms — Set 1
Banking · बेसल मानदंड · Questions 1–10 of 80
The Basel Committee on Banking Supervision (BCBS) is headquartered in which country?
Correct Answer: C. Switzerland
The Basel Committee is based in Basel, Switzerland, at the Bank for International Settlements. It was established by the central bank governors of the Group of Ten (G10) countries in 1974. The committee sets the global standards for the prudential regulation of banks.
In the context of Basel Norms, what does the acronym 'BCBS' stand for?
Correct Answer: B. Basel Committee on Banking Supervision
BCBS stands for the Basel Committee on Banking Supervision. It is the primary global standard setter for the regulation of banks. Its members include central banks and authorities from major financial centers around the world.
The first set of international banking standards, known as Basel I, was introduced in which year?
Correct Answer: A. 1988
Basel I was introduced in 1988 with a primary focus on credit risk. It established a minimum capital requirement of 8% for banks. This accord was designed to strengthen the stability of the international banking system.
The Basel III norms were introduced primarily as a response to which global event?
Correct Answer: C. 2008 Global Financial Crisis
Basel III was developed following the financial crisis of 2007-08. It aimed to improve the banking sector's ability to absorb shocks from financial and economic stress. It introduced more stringent capital and liquidity requirements compared to previous versions.
What is the minimum Capital Adequacy Ratio (CAR) prescribed under the Basel III norms globally?
Correct Answer: D. 8%
Under Basel III, the global minimum capital adequacy ratio is set at 8%. This ratio represents the protection for depositors and promotes stability in financial systems. The RBI in India has historically set a slightly higher requirement of 9% for Indian banks.
Under Basel III, which pillar deals specifically with 'Supervisory Review Process'?
Correct Answer: A. Pillar 2
Pillar 2 of the Basel framework covers the Supervisory Review Process. It ensures that banks have adequate internal processes to assess their capital adequacy. This pillar gives regulators the authority to intervene if a bank's risk management is insufficient.
Which pillar of the Basel framework focuses on 'Market Discipline' through public disclosure?
Correct Answer: B. Pillar 3
Pillar 3 focuses on market discipline by requiring banks to disclose key information about their risks and capital. These disclosures help market participants assess the financial health of a bank. Transparency reduces information asymmetry in the financial market.
In banking, what does 'CRAR' stand for in relation to Basel norms?
Correct Answer: A. Capital to Risk-weighted Assets Ratio
CRAR stands for Capital to Risk-weighted Assets Ratio. It measures a bank's capital against its risk-weighted assets to ensure it can absorb a reasonable amount of loss. It is a critical metric for determining a bank's solvency.
Which of the following is considered 'Tier 1 Capital' of a bank?
Correct Answer: A. Paid-up share capital and free reserves
Tier 1 capital is the core capital of a bank, primarily consisting of equity capital and disclosed reserves. It is the most reliable form of capital as it is fully owned and available to absorb losses immediately. Basel norms emphasize high levels of Tier 1 capital for safety.
What is 'Tier 2 Capital' also commonly known as in the banking industry?
Correct Answer: B. Supplementary Capital
Tier 2 capital is known as supplementary capital. It includes items such as revaluation reserves, undisclosed reserves, and subordinated debt. While useful, it is considered less reliable than Tier 1 capital because it is harder to liquidate.