Explanation:
Let's analyze each option:
Option A: TRUE - Under Basel II, banks could indeed reduce their capital charge (subject to a limit) by demonstrating diversification benefits due to imperfect correlation between credit, operational, and market risk buckets.
Option B: TRUE - Pillar Two (Supervisory Review Process) explicitly allows national supervisors to require additional capital beyond Pillar One minimums if they deem it necessary based on their assessment of a bank's risk profile.
Option C: FALSE - This statement is incorrect because:
Option D: TRUE - Basel II did not include an explicit capital charge for liquidity risk. Liquidity risk was addressed more comprehensively in Basel III.
Therefore, option C is the false statement as it incorrectly claims that all three risk categories under advanced approaches employ VaR concepts.
Ultimate access to all questions.
In regard to Basel II minimum capital requirements, which of the following is false?
A
Banks can reduce their capital charge, subject to a limit, if they can demonstrate diversification benefit due to imperfect correlation between the major risk buckets: credit, operational and market risk.
B
Pillar Two explicitly encourages national authorities (supervisors) to supplement Pillar One with additional capital requirements at their discretion if they deem appropriate.
C
Under the advanced/internal approaches, all three risk categories (credit, market, and operational risk) employ value at risk (VaR) concepts.
D
Basel II had no explicit charge for liquidity risk.
No comments yet.