Basel III Relationship with Banks Quiz
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Questions and Answers

What does ALM stand for in the banking sector?

  • Advanced Liquidity Management
  • Asset Liquidity Measure
  • Accounting and Liability Management
  • Asset Liability Management (correct)
  • Which of the following is NOT considered a fundamental pillar of the banking business?

  • Clients
  • Risk management
  • Technology (correct)
  • Margins
  • Which of the risks below is NOT specifically mentioned as a financial risk that a financial institution may face?

  • Market risk (correct)
  • Legal risk
  • Interest rate risk
  • Credit risk
  • In the banking sector, which risks are considered structural risks in the balance sheet of an institution?

    <p>Interest rate risk and Liquidity risk</p> Signup and view all the answers

    What does ALCO stand for in the context of the banking sector?

    <p>Asset Liability Committee</p> Signup and view all the answers

    What is one of the financial risks that may arise due to changes in interest rates according to the text?

    <p>Interest rate risk</p> Signup and view all the answers

    What percentage of deposits is a company with a simple relationship with the bank supposed to withdraw in a liquidity stress test?

    <p>75%</p> Signup and view all the answers

    In a liquidity stress test, what percentage of deposits is a company with an operating relationship with the bank supposed to withdraw?

    <p>25%</p> Signup and view all the answers

    What is the main purpose of Basel III in relation to banks and their customers?

    <p>To increase 'linkage' by encouraging banks to offer a variety of services</p> Signup and view all the answers

    Who is in charge of proposing exposure limits to the entity's balance sheet risks?

    <p>The ALCO Support Group</p> Signup and view all the answers

    Which group is responsible for monitoring and controlling compliance with decisions adopted within ALCO?

    <p>The ALCO Support Group</p> Signup and view all the answers

    What does the ALCO Support Group periodically report to the Committee on?

    <p>The implementation of agreements adopted within ALCO</p> Signup and view all the answers

    What is the aim of the liquidity stress test in Basel III?

    <p>To encourage banks to take a more cautious approach during systemic crises</p> Signup and view all the answers

    What defines an asset as High-Quality Liquid Asset (HQLA) according to Basel III?

    <p>It can be sold without affecting market price significantly.</p> Signup and view all the answers

    How do liquidity stress tests in Basel III make assumptions about the withdrawal of deposits during a 30-day stress situation?

    <p>By considering contractual withdrawals from credit rating downgrades</p> Signup and view all the answers

    What factor leads to increased collateral requirements during liquidity stress tests?

    <p>Increased market volatility</p> Signup and view all the answers

    Why do liquidity stress tests provide different percentages of withdrawal for different types of investors?

    <p>Due to variations in investor risk profiles and behaviors</p> Signup and view all the answers

    What is the main purpose of ALCO (Asset and Liability Management Committee) in the banking sector?

    <p>To monitor and manage risks related to assets and liabilities</p> Signup and view all the answers

    What is one of the key objectives that should be defined by the Management Board in relation to liquidity risk?

    <p>Implementing a mechanism for liquidity measurement</p> Signup and view all the answers

    In liquidity management, what is the retail channel primarily associated with?

    <p>Capturing liabilities in the commercial network</p> Signup and view all the answers

    What ratio aims to measure how long a financial institution could endure without a liquidity deficit in stress scenarios?

    <p>Survival horizon ratio</p> Signup and view all the answers

    What is the primary focus of ALCO (Asset and Liability Committee) in the banking sector?

    <p>Monitoring and managing balance sheet risks</p> Signup and view all the answers

    Which financing channel allows financial institutions to access capital markets for short-, medium-, and long-term bond issues?

    <p>Wholesale channel</p> Signup and view all the answers

    In a liquidity stress test, what does the survival horizon ratio measure?

    <p>Duration without a liquidity deficit in stress scenarios</p> Signup and view all the answers

    What is the formula to calculate liquidity risk in the context described?

    <p>RISK = EXPOSURE x VARIABILITY x INTENSITY</p> Signup and view all the answers

    How are the expected cash flows treated in the liquidity risk analysis?

    <p>Only cash flows sensitive to interest rate movements are considered.</p> Signup and view all the answers

    What does liquidity risk in banking arise from?

    <p>Differential between short-term maturing liabilities and assets</p> Signup and view all the answers

    How is liquidity risk exposed in the context of liquidity stress tests?

    <p>When short-term maturing liabilities exceed maturing assets</p> Signup and view all the answers

    In liquidity stress tests, what does the analysis horizon usually refer to?

    <p>Duration for distributing sensitive balance by revision or maturity date</p> Signup and view all the answers

    What is the primary objective of calculating the variation in the financial margin in the context provided?

    <p>To measure the impact of parallel yield curve variations</p> Signup and view all the answers

    What is the significance of the survival horizon in liquidity stress tests?

    <p>It aims to measure how long a financial institution could endure without a liquidity deficit in stress scenarios.</p> Signup and view all the answers

    Why do liquidity stress tests provide different percentages of withdrawal for different types of investors?

    <p>To account for the varying behaviors and withdrawal patterns of different types of investors during stress scenarios.</p> Signup and view all the answers

    What does ALCO (Asset and Liability Committee) in the banking sector primarily focus on?

    <p>ALCO is responsible for proposing exposure limits to the entity's balance sheet risks.</p> Signup and view all the answers

    How does market volatility impact the repayment of loans in liquidity stress tests?

    <p>Market volatility can lead to increased collateral requirements during liquidity stress tests.</p> Signup and view all the answers

    What is the aim of liquidity stress tests in Basel III?

    <p>The aim is to make assumptions about the withdrawal of deposits during stress scenarios.</p> Signup and view all the answers

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