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Answer: The incremental risk charge (IRC) was newly introduced in Basel III
## Explanation Basel III introduced several fundamental reforms compared to Basel II: - **A. Liquidity ratios**: Basel III introduced two new liquidity ratios - the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR), which were not present in Basel II. - **B. Leverage ratio**: Basel III introduced a non-risk-based leverage ratio to supplement risk-based capital requirements, which was a new concept not in Basel II. - **D. CVA charge**: Basel III introduced a capital charge for Credit Value Adjustment (CVA) risk to account for counterparty credit risk, which was new compared to Basel II. - **C. Incremental Risk Charge (IRC)**: This was **NOT** newly introduced by Basel III. The IRC was actually introduced in Basel 2.5 (the 2009 revisions to Basel II) to capture default and migration risks for credit-sensitive products in the trading book. It was part of the enhancements to Basel II, not a new Basel III innovation. Therefore, the incremental risk charge (IRC) was the exception - it was not newly introduced by Basel III but rather by the Basel 2.5 revisions to Basel II.
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Q-71. In updating the Basel II regulatory framework, the Committee asserted that Basel III introduced "a number of fundamental reforms to the international regulatory framework." Each of the following was a brand new introduction by Basel III (with respect to Basel II) except which was not?
A
Liquidity ratios were newly introduced in Basel III
B
A leverage ratio was newly introduced in Basel III
C
The incremental risk charge (IRC) was newly introduced in Basel III
D
A credit value adjustment (CVA) charge was newly introduced in Basel III
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