Basel Norms — Set 8
Banking · बेसल मानदंड · Questions 71–80 of 80
What is 'Tier 2 Capital' commonly called?
Correct Answer: D. Supplementary Capital
Tier 2 capital is known as supplementary capital. It includes items like revaluation reserves and subordinated debt. It is considered less reliable than Tier 1 capital but still provides a buffer against losses.
Market Discipline is the focus of which Pillar of the Basel framework?
Correct Answer: A. Pillar 3
Market Discipline is the third pillar of the Basel framework. It requires banks to disclose information about their risk profile and capital levels to the public. This transparency allows the market to evaluate the bank's safety.
Under Basel III, the minimum Common Equity Tier 1 (CET1) ratio is?
Correct Answer: D. 4.5%
Basel III requires a minimum CET1 ratio of 4.5%. Common equity is the highest quality of capital. It provides the strongest protection for a bank's creditors and depositors.
Which ratio ensures that banks have enough high-quality liquid assets to survive a 30-day stress scenario?
Correct Answer: C. LCR (Liquidity Coverage Ratio)
The LCR requires banks to maintain an adequate level of liquid assets to meet their needs for 30 days during a crisis. It was introduced in Basel III to address short-term liquidity risks. High-quality liquid assets include cash and government bonds.
The 'Net Stable Funding Ratio' (NSFR) focuses on a time horizon of?
Correct Answer: A. One year
The NSFR is a long-term liquidity ratio introduced in Basel III. It requires banks to have a stable funding structure over a one-year period. This reduces the risk of banks relying too much on unstable, short-term funding.
Which Indian authority is responsible for implementing Basel norms in India?
Correct Answer: D. Reserve Bank of India (RBI)
The RBI is the regulator of the banking sector in India. It issues guidelines to ensure that Indian banks comply with international Basel standards. The RBI often sets stricter requirements than the global minimums.
In the Capital Adequacy Ratio formula, what is the denominator?
Correct Answer: B. Risk-weighted Assets
The Capital Adequacy Ratio is calculated by dividing total capital by risk-weighted assets. Risk-weighting means assigning higher values to riskier assets. This ensures the capital requirement is proportional to the bank's risk level.
The Basel norms are applicable to which type of institutions?
Correct Answer: B. Banking institutions
The Basel norms are specifically designed for the regulation and supervision of the banking industry. They ensure that banks worldwide operate under similar standards of safety. Other financial entities like insurance companies have their own separate regulations.
Which pillar involves the 'Supervisory Review Process'?
Correct Answer: D. Pillar 2
Pillar 2 of the Basel framework is the Supervisory Review Process. It allows regulators to evaluate a bank's internal risk management and capital assessment. Regulators can demand extra capital if they find a bank's risk management is poor.
The term 'Risk-weighting' means assigning higher capital requirements to?
Correct Answer: C. Riskier assets
Risk-weighting is the process of adjusting the value of assets based on their risk level. Safer assets like cash have a low weight, while riskier loans have a high weight. This means banks must hold more capital for riskier activities.