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Questions and Answers
What is the purpose of the Basel Accord?
What is bank capital?
What are the two tiers of bank capital?
What is the minimum capital adequacy ratio that banks must maintain under Basel III?
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What are the three types of risk that the BCBS provides recommendations on?
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What is Islamic bank capital made up of?
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What is the purpose of bank capital?
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What is the capital adequacy framework?
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What does the capital adequacy ratio (CAR) measure?
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What is the RWCR?
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What are the three pillars of Basel II?
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What are the two types of risk that banks can be exposed to?
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What is the Basel Committee on Bank Supervision responsible for?
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What does the Basel Accord ensure?
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What is bank capital?
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What does Islamic bank capital consist of?
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What are the two tiers of bank capital?
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What is the minimum capital adequacy ratio that banks must maintain under Basel III?
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What are the two types of risks in banking?
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What is the importance of bank capital?
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What does the capital adequacy framework set out?
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What does the capital adequacy ratio (CAR) measure?
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What is the RWCR?
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What are the three pillars of Basel II?
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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.
