Basel Norms — Set 7
Banking · बेसल मानदंड · Questions 61–70 of 80
What is the primary objective of Basel norms?
Correct Answer: C. To ensure the stability of the global banking system
The Basel norms are international standards aimed at making the banking sector more resilient. They ensure that banks have enough capital to handle unexpected losses. This helps prevent financial crises and protects the economy.
Where is the Basel Committee on Banking Supervision headquartered?
Correct Answer: B. Basel
The committee is named after the city of Basel in Switzerland. It is based at the Bank for International Settlements (BIS). The committee was established in 1974 by central bank governors.
Which Basel accord focused primarily on 'Credit Risk'?
Correct Answer: B. Basel I
Basel I, introduced in 1988, was the first set of international standards. Its main focus was on credit risk, which is the risk of a borrower defaulting on a loan. It established a minimum capital requirement of 8%.
How many 'Pillars' are there in the Basel framework?
Correct Answer: B. Three
The Basel framework consists of three pillars. These are minimum capital requirements, supervisory review, and market discipline. This structure was first introduced in the Basel II accord.
What is the minimum capital adequacy ratio prescribed by Basel III?
Correct Answer: C. 8%
Basel III prescribes a minimum total capital ratio of 8% of risk-weighted assets. However, many central banks, including the RBI, require a higher ratio for their domestic banks. This ensures a safety buffer for the financial system.
In banking terminology, what does 'Tier 1 Capital' represent?
Correct Answer: D. Core capital (Equity and reserves)
Tier 1 capital is the primary and most reliable form of a bank's capital. It mainly consists of equity capital and disclosed reserves. This capital is the most effective at absorbing losses while the bank continues to operate.
Which risk category was introduced in Basel II along with credit and market risk?
Correct Answer: C. Operational risk
Basel II introduced capital requirements for operational risk. This is the risk of loss due to internal failures, human errors, or external events. It joined credit and market risk as the three main risk types.
The 'Capital Conservation Buffer' is a feature of which Basel accord?
Correct Answer: D. Basel III
The Capital Conservation Buffer was introduced in Basel III. It requires banks to build up an extra layer of capital during normal times. This buffer can be used to absorb losses during periods of economic stress.
The Basel committee is a part of which international organization?
Correct Answer: D. BIS (Bank for International Settlements)
The Basel Committee on Banking Supervision functions under the Bank for International Settlements. The BIS acts as a bank for central banks and provides a forum for international cooperation. It is located in Switzerland.
In the context of Basel norms, what is the 'Leverage Ratio'?
Correct Answer: C. A non-risk-based capital measure
The leverage ratio is a simple, non-risk-based ratio that acts as a backstop to risk-based capital requirements. It is calculated by dividing Tier 1 capital by total exposure. Basel III introduced this to limit the buildup of excessive debt.