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3. Capital regulation

Which of the following scenarios would result in a decrease in a banks capital ratio? Check all that apply.

A bank begins backing several different types of loans and investments that it had not backed in the past, such as mortgage-backed securities, car loans, and real estate development loans.

A bank that has not been performing strongly engages in a secondary stock offering in an attempt to raise $2 million.

A bank sells off many of its assets, such as mortgage-backed securities, mortgage loans, and real estate development loans.

A bank that has been performing strongly engages in a secondary stock offering in an attempt to raise $2 million.

Basel I

The Basel I framework recommends that banks maintain capital in proportion to which of the following?

Number of commercial loans

Mortgage-backed securities

Liabilities

Risk-weighted assets

Basel II

Which of the following was done under Basel II guidelines?

Revisions were made to the type of analysis banks should do based on the potential of negative economic scenarios.

Banks capital ratio requirements began to factor in operational risk.

Revisions were made recommending that banks maintain a capital conservation buffer of at least 2.5 percent of their risk-weighted assets.

Revisions were made to what assets banks could invest in.

Basel III

Which of the following was done under Basel III guidelines?

Revisions were made to what assets banks could invest in.

Revisions were made recommending that banks maintain retained earnings and common stock of at least 6 percent of their total risk-weighted assets.

Revisions were made to the way banks could acquire risky assets.

Banks capital ratio requirements began to factor into operational risk.

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