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Question

In terms of banking capital reserve, Tier II's capital loss absorption capacity is____ that of Tier I capital.

A Higher than Correct Answer Incorrect Answer
B Lower than Correct Answer Incorrect Answer
C Equal to Correct Answer Incorrect Answer
D Equal or higher than Correct Answer Incorrect Answer
E Equal or lower than Correct Answer Incorrect Answer

Solution

Tier I items are deemed to be of the highest quality because they are fully available to cover losses Hence it is also termed as core capital. Tier II items qualify as regulatory capital to the extent that they can be used to absorb losses arising from a bank's activities. Tier II's capital loss absorption capacity is lower than that of Tier I capital. It is therefore also known as supplementary capital.

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