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Answer: The increase in the credit valuation adjustment (CVA) due to the bank's asset counterparty positions would tend to raise the bank's risk-weighted assets.
## Explanation Let's analyze each option: **Option A: Incorrect** - The capital conservation buffer must be met with Common Equity Tier 1 (CET1) capital, not Tier 2 capital. Tier 2 capital can only be used to meet the total capital requirement, not the conservation buffer. **Option B: Incorrect** - If exposure on derivative asset positions decreases, this would reduce risk-weighted assets (RWA), which would actually increase the total capital ratio (capital/RWA), not decrease it. **Option C: Correct** - An increase in the credit valuation adjustment (CVA) due to the bank's asset counterparty positions would increase counterparty credit risk exposure. Since CVA risk is included in the calculation of risk-weighted assets under Basel III, this would indeed tend to raise the bank's RWA. **Option D: Incorrect** - If the bank raises additional CET1 capital and invests in gold, the NSFR would likely change because gold has a different required stable funding (RSF) factor compared to other assets. Gold typically has a 50% RSF factor, so this transaction would affect the NSFR calculation. Therefore, option C is the correct conclusion.
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In viewing the results of this capital analysis report and other considerations for Bank LGX's capital planning, which of the following conclusions is correct?
A
The capital conservation buffer can be met by an increase in Tier 2 capital.
B
If the exposure on derivative asset positions decreases, holding other factors constant, total capital ratio would decrease.
C
The increase in the credit valuation adjustment (CVA) due to the bank's asset counterparty positions would tend to raise the bank's risk-weighted assets.
D
If the bank raises additional CET 1 capital and invests the same amount in gold, Bank LGX's net stable funding ratio (NSFR) will not change.