Explanation:
Under the Basel III framework, the minimum Tier 1 capital ratio requirement is 6% of risk-weighted assets (RWA). This is composed of a minimum Common Equity Tier 1 (CET1) ratio of 4.5% and an Additional Tier 1 (AT1) capital requirement of 1.5%. Total capital must be at least 8% of RWA. Since the bank's Tier 1 capital is only 5%, it falls below the minimum required 6%, making it unacceptable.
Q.8 Rosenborg Bank from Trondheim, Norway, is preparing for Basel III implementations. Its risk management team has established that as of March 31, 2018, the bank’s Tier 1 capital amounts to 5% of risk-weighted assets. Is this acceptable?
A
Yes, total Tier I capital should be at least 2% of risk-weighted assets (RWA)
B
No, total Tier I capital should be at least 8% of RWA
C
Yes, total Tier I capital should be at least 4% of RWA
D
No, total Tier I capital should be at least 6% of RWA
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