Question

Which of the following about Basel III is/are TRUE?

Select one or more:

a. 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.

b. The greater the Tier I leverage ratio under Basel III, the more highly leveraged the bank.

c. Under Basel III a depository institution's capital is divided into five categories.

d. Basel III capital ratios were enacted due to Basel II weaknesses exposed during the financial crisis of 2008-2009.

Answer 1

Answer: Option "b" is correct that says ,"The greater the Tier I leverage ratio under Basel III, the more highly leveraged the bank.

Tier 1 leverage ratio-This ratio is the relationship between bank's capital and its total assets. This rato tells how leveraged a bank is in relation to its assets. Higher the Tier 1 ratio, bank is highly leveraged.

Formula of Tier 1 Leverage ratio:

Tier 1 Leverage ratio = Tier 1 Capital / Consolidated assets

Where Tier 1 capital includes Common equity, Retained earnings, reserve, other financial instruments. This ratio measures financial health of company.