Unit 2. Basel I. Critics.

What was the primary achievement of the Basel 1 Accord?

• It reduced the capital requirements for banks.

• It increased the number of bank failures.

• It created a worldwide benchmark for banking regulations.

• It eliminated all banking regulations.

What was the average capital ratio of large G10 banks in 1996?

• 9.3 percent

• 11.2 percent

• 8 percent

• 10 percent

What is 'capital arbitrage' in the context of banking?

• A method to increase regulatory capital.

• A technique to reduce bank risks.

• A strategy to eliminate capital requirements.

• An arbitrage between regulatory and economic capital.

What is a significant weakness of the Basel 1 Accord?

• It recognizes diversification effectively.

• It covers all types of risks comprehensively.

• It allows for unlimited capital requirements.

• It has a one-size-fits-all approach.

What does securitization involve?

• Issuing new bank regulations.

• Selling risky assets to investors directly.

• Transferring illiquid assets to a Special Purpose Vehicle.

• Transferring illiquid assets to a bank.

What is a limitation of the Basel 1 Accord regarding collateral?

• It mandates collateral for all loans.

• It requires no collateral for loans.

• It has a limited recognition of collateral.

• It recognizes all forms of collateral.

What was one of the criticisms of the capital ratio set by Basel 1?

• It was too high for small banks.

• It was arbitrary and not based on explicit solvency targets.

• It was too low for large banks.

• It was based on extensive empirical research.

What does the term 'remote-origination securitization' refer to?

• Securitization of high-quality loans only.

• Securitization structured as if loans were directly granted by the SPV.

• A technique to increase regulatory capital.

• A method to eliminate all risks in securitization.

What is the main focus of the Basel 1 Accord?

• Market risk.

• Operational risk management.

• Credit risk.

• Strategic risk.

What is the purpose of the Basel 2 proposal?

• To reduce the number of banks globally.

• To eliminate all capital requirements.

• To maintain the same regulatory framework as Basel 1.

• To address criticisms of Basel 1 and improve risk management.