nayizhenfeng

 

2、Which of the following are incentives for bad bank behavior resulting from the implementation of Basel II?

      I. Risk calibration reduces tendency to switch to advanced risk measurement models.

     II. Banks are encouraged to lend more in good economies and less in bad economies.

    III. Banks may manage the output of their risk measurement systems as it may have firm-wide implications.

A) I only.

B) II only.  

C) I and III.  

D) II and III. 

nayizhenfeng

 

The correct answer is D

 

Underestimation of risk from calibrated parameters is only a problem for emerging market banks. Lending more in good times or pro-cyclicality is a continuing problem with the implementation of Basel II. A more pressing question is whether Basel II exacerbates or reduces the pro-cyclical tendency. Risk measurement systems have increasing importance under Basel II.

nayizhenfeng

 

The correct answer is D

 

The purpose of addressing market discipline in Basel II is to provide all financial market participants, banks, investors, and regulators with timely and relevant information on banking operations and activities while simultaneously recognizing the sensitivity of proprietary internal operations.

nayizhenfeng

 

3、Pillar 3 of the Basel II Accord addresses the issue of market risk by requiring that internationally active banks:

A) include only common stock and noncumulative preferred stock in tier 1 capital.

B) enhance disclosure to improve transparency in the banking industry.  

C) never assign corporate credit risk weights below the risk weights of their country of origin.

D) use probability of default (PD) estimates based on downturn economic scenarios.

nayizhenfeng

 

The correct answer is B

 

Pillar 3 calls on banks to make disclosures that will improve transparency for all banking and financial system participants.

nayizhenfeng

 

4、Which of the following pairs correctly identifies an activity and its associated Pillar under the Basel II Accord?

 Activity                                illar

A) Market discipline                    Second and third 

B) External review                       First

C) Required disclosures                   Third

D) Capital calculation                     Second

nayizhenfeng

 

The correct answer is C

 

Required disclosures are mandated under the Third Pillar.

 

nayizhenfeng

 

3、The main purpose of the Basel II Accord’s Second Pillar is to ensure:

A) increased transparency for all banking system participants.  

B) that banks maintain an appropriate level of capital to cover market risks. 

C) that the internal review process appropriately assesses capital adequacy.  

D) competitive equality among internationally active bank holding companies.

nayizhenfeng

 

The correct answer is C

 

Pillar 2 is the Supervisory Review Process, which addresses the internal controls in place to assure capital adequacy.

nayizhenfeng

 

AIM 17: Discuss the purpose of the Third Pillar, and describe the procedures for addressing the concept of market discipline.

1、Market discipline is mainly addressed in Basel II through the disclosure mechanism of:

A) credit-risk exposures.  

B) proprietary banking operations.

C) timely and relevant banking operations and activities.  

D) competitive-sensitive internal operations.