Basel Capital Framework - Group 2

What is the main objective of Basel III framework?

• Securing international convergence of supervisory regulations and governing capital adequacy of banks with the goal of minimizing credit risk.

• Focuses on risk-weighted assets and providing opportunity for banks to make use of their risk assets and to maintain enough cash reserves to cover risk in their operations.

• Focuses on quality, consistency, and transparency of regulatory capital. This is to ensure banking sector can meet the higher capital standards through reasonable earnings and capital raising.

• All of the above

What are the minimum capital requirements for CET 1, Total Tier 1 capital and Total Capital respectively?

• 4.5%, 6.0%, 8.0%

• 8.0%, 4.5%, 9.0%

• 6.0%, 8.0, 5.4%

Due to Covid-19, Maybank has entered into a resolution and its COCO bonds had been converted to equity.

Place the following in correct order, who would absorb losses from first to last?

I. Preference shares

II. Unsecured senior creditors

III. Ordinary shares

IV. Unsecured subordinated creditors

• IV, III, I, II

• III, I, IV, II

• II, III, IV, I

• II, IV, III, I

Which is true to describe common equity Tier 1 Capital (CET1)?

I. Absorb losses immediately when occur

II. Highest quality of regulatory capital

III. Provides loss absorption on a gone-concern basis

IV. Commonly divided into 2 tiers which is upper and lower

• I & IV

• I & II

• III & IV

• II & III

HSBC Bank has a banking book investment in an AT1 capital instrument of an affiliate bank. The issuance is rate BB.

What is the regulatory treatment for this investment?

• Threshold deduction rule based on corresponding deduction approach

• Full deduction based on corresponding deduction approach

• 160% risk weight

• 250% risk weight