Basel II MCQ | JAIIB Principles & Practices of Banking MCQ

1. The International Convergence of Capital Measurement and Capital Standards – A Revised Framework
2. A global regulatory framework for more resilient banks and banking systems
3. Basel-I – A resilient banking system
4. None of the Above

Answer: (1)

1. 1988
2. 2000
3. 2004
4. 2008

Answer: (3)
The Basel Committee on Banking Supervision (BCBS) released the revised capital accord, also called, Basel II, on June 26, 2004. It is an extension of the regulations for minimum capital requirements as defined under Basel I.

1. Four
2. Three
3. Two
4. One

Answer: (2)
The Basel II framework operates under three pillars.

1. Minimum Capital Requirements
2. Supervisory Review
3. Market Discipline
4. All above are pillars

Answer: (4)
The Basel II framework operates under three pillars: Capital Adequacy Requirements, Supervisory Review and Market Discipline

1. One
2. Two
3. Three
4. Four

Answer: (3)
The regulatory bank capital comprised of three levels (or ‘tiers’) of capital.

• Tier 1 capital deemed to have highest capacity to absorbing losses in order to allow banks continue to operate on ongoing basis. It comprises of common shareholder equity, Disclosed Reserves and non-cumulative perpetual preferred stock
• Tier 2 (Also called Supplementary Capital) consists of subordinated debt, undisclosed reserves, general loan loss reserves and hybrid debt equity capital instruments
• Tier 3 consists of subordinated debt with some limitations

1. Credit risk
2. Operational risk
3. Market risk
4. All of the Above

Answer: (4)
The Basel-II accord recognizes three big risk buckets: credit risk, market risk, and operational risk

1. 7%
2. 8%
3. 9%
4. 10.5%

Answer: (2)
Basel II provides guidelines for calculation of minimum regulatory capital ratios and confirms the definition of regulatory capital and an 8% minimum coefficient for regulatory capital over risk-weighted assets.

1. Value at Risk
2. Standardized Approach
3. Foundation Internal Ratings-based approach
4. Advanced Internal Ratings-based approach

Answer: (1)
Basel II also provides banks with more informed approaches to calculate capital requirements based on credit risk, while taking into account each type of asset’s risk profile and specific characteristics. The two main approaches include the: Standardized approach, Internal ratings-based approach (Foundation Internal Ratings-based approach and Advanced Internal Ratings-based approach)

1. Basic Indicator Approach
2. Standardized Approach
3. Advanced Measurement Approach
4. Foundation Internal Ratings-based approach

Answer: (4)
The Basel framework provides three approaches for the measurement of the capital charge for operational risk. These are Basic Indicator Approach (BIA), Standardized Approach and Advanced Measurement Approach

1. Standardized Approach
2. Value at Risk
3. Foundation Internal Ratings-based approach
4. Advanced Internal Ratings-based approach

Answer: (2)
For market risk the preferred approach is VaR (value at risk)

1. 100%
2. 125%
3. 150%
4. 200%

Answer: (3)
Basel II introduced a new 150% weighting for borrowers with lower credit ratings

1. Undisclosed Reserves
2. Disclosed Reserves
3. Common Shareholder Equity
4. Non-cumulative Perpetual Preferred Stock

Answer: (1)
It comprises of common shareholder equity, Disclosed Reserves and non-cumulative perpetual preferred stock

1. Tier-IV
2. Tier-III
3. Tier-II
4. Tier-I

Answer: (4)
Tier 1 capital deemed to have highest capacity to absorbing losses in order to allow banks continue to operate on ongoing basis.

1. 75%
2. 100%
3. 125%
4. 150%

Answer: (2)
Tier 2 capital cannot be more than 100% of Tier 1 capital and within Tier 2 capital, subordinated debt is limited to a maximum of 50% of Tier 1 capital. losses without triggering bankruptcy of the bank.

1. One
2. Two
3. Three
4. Four

Answer: (4)
There are four principles that governs the Supervisory Process Review.

• Principle 1: Banks should have a process for assessing their overall capital adequacy in relation to their risk profile and a strategy for maintaining their capital levels.
• Principle 2: Supervisors should review and evaluate banks’ internal capital adequacy assessments and strategies, as well as their ability to monitor and ensure their compliance with regulatory capital ratios. Supervisors should take appropriate supervisory action if they are not satisfied with the result of this
  process.
• Principle 3: Supervisors should expect banks to operate above the minimum regulatory capital ratios and should have the ability to require banks to hold capital in excess of the minimum.
• Principle 4: Supervisors should seek to intervene at an early stage to prevent capital from falling below the minimum levels required to support the risk characteristics of a particular bank and should require rapid remedial action if capital is not maintained or restored

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