Financial Risk Manager Part 2

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Q-81. Capital conservation buffers have been established by the Basel Committee as part of measures designed to ensure that banks have enough capital to handle stress situations. Assuming no regulatory add-ons have been imposed, which of the following is correct?

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If the bank has 8% Common Equity Tier 1 (CET1) capital with no Additional Tier 1 or Tier 2 capital. It would have zero conservation buffer and therefore be subject to a 100% constraint on capital distributions.

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If the bank has 8% CET1 with no Additional Tier 1 or Tier 2 capital, it would satisfy the zero conservation buffer and therefore not be subjected to a constraint on capital distributions.

If the bank has 7% CET1 with no Additional Tier 1 or Tier 2 capital; it would have a 2.5% conservation buffer and therefore not be subjected to a constraint on capital distributions.

If the bank has 9.5% CET1 with no Additional Tier 1 or Tier 2 capital, it would have a 2.5% conservation buffer and therefore not be subjected to a constraint on capital distributions.