Exam 20: Capital Adequacy

Under Basel III, the credit risk-adjusted value of the bank's on-balance-sheet assets can be found by adding the products of the risk weights for each asset times the market value of each asset.

The bank is considering changing its asset mix by moving $100 million of commercial loans into Treasury securities. If it does change the asset mix and capital remains the same, the risk-based capital ratio

In evaluating the risk-adjusted asset value of foreign exchange forward contracts, the value of the current exposure can be either positive or zero.

The calculation of the risk-adjusted asset values of OBS market contracts

The book value of bank equity is the present value of assets minus the present value of liabilities.

Which of the following is NOT a typical argument against market value accounting?

Market value accounting often is said to be difficult to implement because of the amounts of nontraded assets.

Counterparty credit risk is more prevalent for exchange-traded derivatives than over-the-counter (OTC) contracts because the bank has more control of its OTC contracts.

The buffer proposed by Basel III that is designed to ensure that DTIs build up a capital surplus outside of periods of financial distress is called the

Under Basel III, OSFI requires Canadian banks to hold a total capital to credit risk-adjusted assets equal to 8 percent to be adequately capitalized.

Similar to Basel II, Basel III will require banks to assign on-balance-sheet assets to one of four categories of credit risk exposure.

Basel II attempts to encourage market discipline by having banks disclose capital structure, risk exposures, and capital adequacy in a systematic manner.

Each of the following is a function of capital EXCEPT

Determining risk-adjusted asset values for OBS market contracts requires multiplying the notional values by the appropriate risk weights.

Counterparty credit risk is the risk that the other party of a contract will default on contract obligations.

The BIS plans largely ignore the covariance among asset risks between different parties.

Losses in asset values due to adverse changes in interest rates are borne initially by the

Regulators may not be trained or willing to make the necessary decisions that may rely heavily on judgment.

The Tier I leverage ratio measures the amount of an FI's total capital relative to total assets.

Under Basel III, OBS contingent guarantee contracts are assigned the same risk weights as on-balance-sheet principal items to determine their risk-adjusted asset values.