Question

    Which among the following is NOT a constituent of

    Tier-II capital of banks according to BASEL Accord?
    A Revaluation Reserve Correct Answer Incorrect Answer
    B Hybrid Capital Instruments Correct Answer Incorrect Answer
    C Subordinated Debts Correct Answer Incorrect Answer
    D General Loan-loss Reserves Correct Answer Incorrect Answer
    E Capital Reserve Correct Answer Incorrect Answer

    Solution

    Tier 2 capital must be at least 2% of RWAs on an ongoing basis. Tier 2 Capital: represents “supplementary capital” such as undisclosed reserves, revaluation reserves, general loan-loss reserves, hybrid (debt/equity) capital instruments, and subordinated debt of the financial institution. Tier 2 Capital is generally less reliable or secure than Tier 1 capital, and therefore must be considered separately when evaluating the riskiness of a bank. Capital reserve is a disclosed reserve and forms a part of the Tier I capital of the bank.

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