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Question

Basel III capital regulations are based on 3 mutually reinforcing pillars. These pillars are:

I.          Minimum Capital Standards

II.         Supervisory Review of Capital Adequacy

III.        Risk Management & Market Discipline

IV.        Liquidity standards

A I, II and III Correct Answer Incorrect Answer
B II, III and IV Correct Answer Incorrect Answer
C I, III and IV Correct Answer Incorrect Answer
D I, II and IV Correct Answer Incorrect Answer
E All of the above Correct Answer Incorrect Answer

Solution

Pillars of the Basel III Norms for Banking → Pillar 1 - Minimum Regulatory Capital Requirements based on Risk Weighted Assets (RWAs): Maintaining capital calculated through credit, market and operational risk areas. → Pillar 2 - Supervisory Review Process: Regulating tools and frameworks for dealing with peripheral risks that banks face. → Pillar 3 - Market Discipline: Increasing the disclosures that banks must provide to increase the transparency of banks. Liquidity risk and measurement and management of liquidity risk is a major addition to the BASEL III norms. However, it is not one of the three pillars but a part of the mechanism to strengthen the existing 3 pillar framework under Basel Accords.

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