How well do you understand bank capital and risks?
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Questions and Answers

What is the purpose of the Basel Accord?

  • To increase profits for financial institutions
  • To regulate banking operations
  • To ensure banks have enough capital to absorb unexpected losses (correct)
  • To decrease the number of banks in operation

    • What is bank capital?

  • The amount of money a bank borrows from other financial institutions
  • The amount of money a bank lends out
  • The differences between bank assets and deposits (correct)
  • The amount of money a bank has on hand

    • What are the two tiers of bank capital?

  • Tier X and Tier Y
  • Tier I and Tier II
  • Tier 1 and Tier 2 (correct)
  • Tier A and Tier B

    • What is the minimum capital adequacy ratio that banks must maintain under Basel III?

    <p>8%</p> Signup and view all the answers

    What are the three types of risk that the BCBS provides recommendations on?

    <p>Capital risk, market risk, and operational risk</p> Signup and view all the answers

    What is Islamic bank capital made up of?

    <p>Equity, reserves, and hybrid instruments</p> Signup and view all the answers

    What is the purpose of bank capital?

    <p>To help banks cope with unexpected losses</p> Signup and view all the answers

    What is the capital adequacy framework?

    <p>The approach for the computation of minimum capital required by a banking institution</p> Signup and view all the answers

    What does the capital adequacy ratio (CAR) measure?

    <p>A bank’s capital in relation to its risk-weighted assets</p> Signup and view all the answers

    What is the RWCR?

    <p>The statutory minimum reserves of capital that a bank or other financial institution must have available</p> Signup and view all the answers

    What are the three pillars of Basel II?

    <p>Minimum capital requirements, supervisory review, and market discipline</p> Signup and view all the answers

    What are the two types of risk that banks can be exposed to?

    <p>On-balance sheet and off-balance sheet risk</p> Signup and view all the answers

    What is the Basel Committee on Bank Supervision responsible for?

    <p>Providing recommendations on banking regulations</p> Signup and view all the answers

    What does the Basel Accord ensure?

    <p>Financial institutions have enough capital on account to absorb unexpected losses</p> Signup and view all the answers

    What is bank capital?

    <p>The differences between bank assets and deposits</p> Signup and view all the answers

    What does Islamic bank capital consist of?

    <p>Equity, reserves, and hybrid instruments</p> Signup and view all the answers

    What are the two tiers of bank capital?

    <p>Tier 1 (basic/core capital) and Tier 2 (additional/secondary capital)</p> Signup and view all the answers

    What is the minimum capital adequacy ratio that banks must maintain under Basel III?

    <p>8%</p> Signup and view all the answers

    What are the two types of risks in banking?

    <p>On-balance sheet and off-balance sheet risk</p> Signup and view all the answers

    What is the importance of bank capital?

    <p>To help banks cope with unexpected waves of withdrawals, accidental losses, bankruptcies of firms that do business with banks, and individual customers who cannot repay financing/loans</p> Signup and view all the answers

    What does the capital adequacy framework set out?

    <p>The approach for the computation of minimum capital required by a banking institution in order to operate as a going concern entity</p> Signup and view all the answers

    What does the capital adequacy ratio (CAR) measure?

    <p>A bank’s capital in relation to its risk-weighted assets</p> Signup and view all the answers

    What is the RWCR?

    <p>The statutory minimum reserves of capital that a bank or other financial institution must have available</p> Signup and view all the answers

    What are the three pillars of Basel II?

    <p>Minimum capital requirements, supervisory review, and market discipline</p> Signup and view all the answers

    Study Notes

    Understanding Bank Capital and Risks

    • The Basel Committee on Bank Supervision (BCBS) provides recommendations on banking regulations, specifically concerning capital risk, market risk, and operational risk.
    • The Basel Accord ensures that financial institutions have enough capital on account to absorb unexpected losses.
    • Bank capital is the differences between bank assets and deposits (assuming deposits are the only bank liabilities).
    • Islamic bank capital consists of equity, reserves, and hybrid instruments.
    • The two tiers of bank capital are Tier 1 (basic/core capital) and Tier 2 (additional/secondary capital).
    • The minimum capital adequacy ratio that banks must maintain is 8% under Basel III.
    • Risks in banking can be classified as on-balance sheet and off-balance sheet risk, which expose banks to several types of risk.
    • The importance of bank capital is to help banks cope with unexpected waves of withdrawals, accidental losses, bankruptcies of firms that do business with banks, and individual customers who cannot repay financing/loans.
    • The capital adequacy framework sets out the approach for the computation of minimum capital required by a banking institution in order to operate as a going concern entity.
    • The capital adequacy ratio (CAR) measures a bank’s capital in relation to its risk-weighted assets.
    • The RWCR is the statutory minimum reserves of capital that a bank or other financial institution must have available.
    • Basel II is the underlying foundation for banking supervision and regulations, and it consists of three pillars: minimum capital requirements, supervisory review, and market discipline.

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    Description

    Test your knowledge on bank capital and risks with this quiz! From understanding the different tiers of bank capital to the importance of maintaining a minimum capital adequacy ratio, this quiz covers it all. Learn about the different types of risks banks face and how the Basel Committee on Bank Supervision helps regulate the industry. Challenge yourself and see how much you know about this important topic in finance.

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