Answer: Only I but not II.

## Explanation **Correct Answer: B (Only I but not II)** ### Analysis of the Two Buffers: **I. Capital Conservation Buffer (2.5% of RWA)** - This buffer is designed to **"promote the conservation of capital and the build-up of adequate buffers above the minimum that can be drawn down in periods of stress"** - It creates a capital buffer that banks must maintain above minimum requirements - During normal times, banks build up this buffer, and during stress periods, they can draw it down - This directly addresses the stated objective in the question **II. Countercyclical Buffer (0-2.5% of RWA)** - This buffer is specifically designed to **reduce procyclicality** in the banking system - It is activated during periods of excessive credit growth to build up capital buffers - When credit conditions normalize, the buffer can be released - This directly addresses the procyclicality aspect mentioned in the question ### Why Only Statement I is Correct: The question specifically asks which buffer implements the function of **"promote the conservation of capital and the build-up of adequate buffers above the minimum that can be drawn down in periods of stress"** - this description perfectly matches the **Capital Conservation Buffer** (Statement I). While the Countercyclical Buffer (Statement II) does address procyclicality, it is not primarily designed for the capital conservation function described in the question. ### Basel III Buffer Framework: - **Capital Conservation Buffer**: Mandatory buffer to ensure banks maintain capital above minimum requirements - **Countercyclical Buffer**: Discretionary buffer to address systemic risk from excessive credit growth - Both buffers work together but serve different primary purposes in the Basel III framework

Author: LeetQuiz .