Basel Norms — Set 2
Banking · बेसल मानदंड · Questions 11–20 of 80
Which ratio was introduced in Basel III to ensure that banks have enough high-quality liquid assets to survive a 30-day stress scenario?
Correct Answer: D. Liquidity Coverage Ratio (LCR)
The Liquidity Coverage Ratio (LCR) requires banks to hold an amount of high-quality liquid assets that can cover net cash outflows for 30 days. This was a key post-2008 reform to prevent bank runs. It ensures short-term resilience in a liquidity crisis.
The 'Net Stable Funding Ratio' (NSFR) introduced in Basel III focuses on which time horizon?
Correct Answer: B. One year
NSFR is a long-term liquidity ratio intended to ensure that banks have a stable funding profile over a one-year horizon. It limits over-reliance on short-term wholesale funding. This encourages a more sustainable structure for bank assets and liabilities.
What is the primary objective of a 'Capital Conservation Buffer' (CCB) under Basel III?
Correct Answer: B. To build up capital in good times to be used in periods of stress
The CCB is an extra layer of capital that banks are required to maintain during normal times. If a bank's capital falls into the buffer range, it faces restrictions on dividend payouts. This ensures that the bank remains solvent during economic downturns.
The 'Leverage Ratio' introduced in Basel III is a non-risk-based measure calculated as?
Correct Answer: A. Tier 1 Capital divided by Total Exposure
The Leverage Ratio is Tier 1 capital divided by the bank's total unweighted exposure. Unlike CRAR, it does not weight assets by risk, providing a simple backstop against excessive debt. It serves as a check on the risk-based capital requirements.
Under Basel III, the 'Counter-Cyclical Buffer' (CCyB) is used to?
Correct Answer: D. Curb excessive credit growth during an economic boom
The CCyB is a discretionary capital requirement that regulators can activate during periods of high credit growth. It protects the banking system from the buildup of systemic risk during a boom. This buffer can be released when the economic cycle turns negative.
Which risk category was specifically added or significantly detailed in the transition from Basel I to Basel II?
Correct Answer: B. Operational Risk
Basel II expanded the framework to include operational risk and market risk, whereas Basel I focused mostly on credit risk. Operational risk refers to losses resulting from inadequate internal processes, people, or systems. Basel II also introduced the three-pillar structure.
What is the role of 'Risk-weighted Assets' (RWA) in the Basel framework?
Correct Answer: A. To adjust asset values based on their risk level for capital calculations
Risk-weighting means that riskier assets, like unsecured loans, require more capital than safer ones, like government bonds. This ensures that a bank's capital level is proportionate to the actual risks it takes. RWAs are the denominator in the Capital Adequacy Ratio formula.
According to the RBI, what is the minimum CRAR requirement for Scheduled Commercial Banks in India?
Correct Answer: A. 9%
While the international Basel III standard is 8%, the Reserve Bank of India mandates a minimum 9% CRAR for Indian banks. This higher requirement provides an additional safety margin for the Indian banking sector. Public sector banks are also required to maintain this level.
Which Basel accord introduced the 'Three Pillars' concept?
Correct Answer: B. Basel II
The three-pillar framework was the hallmark of Basel II, introduced in 2004. These pillars are Minimum Capital Requirements, Supervisory Review, and Market Discipline. Basel III later enhanced these pillars but kept the basic structure.
Under Basel III, what is the standard value for the 'Capital Conservation Buffer' (CCB)?
Correct Answer: A. 2.5%
The Capital Conservation Buffer is set at 2.5% of risk-weighted assets. This is in addition to the 7% minimum Common Equity Tier 1 requirement. It is composed entirely of common equity.