［2008］Topic 65: Risk Measurement, Risk Management and Capital Adequacy in F different, regulated, capital, across

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AIM 1: Describe the silo approach used to regulate capital requirements in different financial conglomerates, and critically assess its limitations.

 

1、The silo approach to capital regulation for financial conglomerates:

aggregates risk across diverse regulated subsidiaries.
sums the capital requirements across diverse regulated subsidiaries.
considers the capital requirements of non-licensed financial operations engaged in lending or leasing.
A) I and II only.
 
B) II only.
 
C) II and III only.
 
D) I, II, and III.

nayizhenfeng

The correct answer is B

The silo approach simply sums each operations capital requirements to arrive at an overall capital figure. It does not consider the capital requirements of non-licensed financial operations engaged in lending or leasing activities. It does not aggregate risk across diverse regulated subsidiaries, which would lower capital requirements through diversification benefits or increase them because of concentration of risk.

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2、Focusing on each individual operation of a conglomerate to arrive at a total capital adequacy figure describes the:

A) silo approach.
 
B) legal-based approach. 
 
C) market-based approach.
 
D) building-block approach.

nayizhenfeng

The correct answer is A

The silo approach treats the individual businesses as independent silos to determine total capital adequacy. The building-block approach aggregates risks based on modeling the three levels of a financial conglomerate. The legal-based and market-based approaches are part of the capital regulation of financial conglomerates.

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3、Which of the following are NOT limitations of the silo approach of risk measurement for financial conglomerates?

A) The supervision may lack the experience required to monitor risks outside her primary business area.
 
B) It does not consider the capital requirements of non-licensed financial operations engaged in lending or leasing activities.
 
C) The operations’ risk levels could be similar yet regulation would require a different treatment for each unit.
 
D) It does not aggregate risks across diverse regulated subsidiaries.

nayizhenfeng

The correct answer is A

This is a problem of choosing the top risk officer from the risk officers of any division.

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AIM 3: Describe the building-block approach and diversification benefits for aggregating risks in a financial conglomerate.

 

1、Which of the following approaches to the capital regulation of financial conglomerates combine(s) the various risks faced by a financial conglomerate into a single risk measure?

The silo approach.
The building block approach.
The economic capital approach.
A) I, II, and III.
 
B) III only.
 
C) II only.
 
D) II and III only.

nayizhenfeng

The correct answer is D

The economic capital approach and building block approach combine the various risks into a single risk measure. The silo approach does not aggregate risks.

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2、The building block approach addresses which of the following special challenges a conglomerate creates for capital management?

The stand-alone risk associated with portfolios.
Different cross-risk factors within business units.
Different risk factors across business units at the holding company level or cross-sector level.
Balancing the problem of over or under capitalization by focusing on the regulatory concern for profitability.
A) II, III, and IV only.
 
B) I, II, and III only.
 
C) II and III only.
 
D) I and IV only.

nayizhenfeng

The correct answer is B

Statement IV is incorrect; statements I, II, and III are correct.