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      Question

      To prevent a severe initial shock to regulatory capital

      adequacy upon transitioning to ECL, banks can "add back" provisions to which capital layer?
      A Tier 2 Capital Correct Answer Incorrect Answer
      B Common Equity Tier 1 (CET1) Capital Correct Answer Incorrect Answer
      C Additional Tier 1 (AT1) Capital Correct Answer Incorrect Answer
      D Statutory Reserves Correct Answer Incorrect Answer
      E Revaluation Reserves Correct Answer Incorrect Answer

      Solution

      The transitional relief rules allow banks to add back a tapering percentage of the new ECL provisions directly to their CET1 capital layer over a four-year window.

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