MANAGEMENT

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BUISENESS MANAGEMENT

RISK MANAGEMENT

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
As per Basel III, which of the following is an element of Common Equity component of Tier I <br />(1) Common shares i.e. paid up equity capital <br />(2) Stock surplus i.e. share premium <br />(3) Statutory reserves <br />(4) Capital reserves representing surplus arising out of sale proceeds of assets <br />(5) Balance in profit and loss account at the end of the previous year.<br />
A
1, 2, 3, 4 and 5
B
1, 2, 3
C
1, 2, 4
D
1, 2, 5
Explanation: 

Detailed explanation-1: -Under Basel III, the minimum Common Equity Tier 1 increased to 4.5%, down from 4% in Basel II. It also increased the minimum Tier 1 capital to 6% from 4% in Basel II. The overall minimum regulatory capital ratio was left unchanged at 8%, out of which 6% is Tier 1 capital.

Detailed explanation-2: -Total regulatory capital should be at least 9% of risk weighted assets and within this, Tier 1 capital should be at least 6% of risk weighted assets. Within Tier 1 capital, innovative Tier 1 instruments are limited to 15% of Tier 1 capital.

Detailed explanation-3: -CET1 comprises a bank’s core capital and includes common shares, stock surpluses resulting from the issue of common shares, retained earnings, common shares issued by subsidiaries and held by third parties, and accumulated other comprehensive income (AOCI).

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