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      Question

      To prevent banks from utilizing overly optimistic

      internal statistical software to under-provision under the ECL guidelines, the regulator introduces which mechanism?
      A Management Overlays Correct Answer Incorrect Answer
      B Model Calibration Caps Correct Answer Incorrect Answer
      C Prudential Floors Correct Answer Incorrect Answer
      D Amortization Add-backs Correct Answer Incorrect Answer
      E Capital Conservation Caps Correct Answer Incorrect Answer

      Solution

      If a bank’s advanced internal machine-learning or statistical model calculates a provision lower than the sector baseline mandated by the regulator, the bank must legally comply with the higher value determined by the "Prudential Floor."

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