Practice Test Geeks(CRA) Certified Risk Analyst Practice Test
← All CRA Flashcard Decks

Regulatory Capital Requirements Flashcards

7 cards from real CRA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Regulatory Capital Requirements flashcards as text

  1. Which U.S. regulatory framework establishes minimum capital requirements for nationally chartered banks through the Prompt Corrective Action (PCA) provisions?

    Answer: Federal Deposit Insurance Corporation Improvement Act (FDICIA)

    FDICIA's PCA provisions establish five capital categories and mandate specific regulatory actions as a bank's capital deteriorates below defined thresholds.

  2. Under Basel III's Fundamental Review of the Trading Book (FRTB), which risk measure replaced VaR as the primary capital metric?

    Answer: Expected Shortfall (ES)

    FRTB replaced VaR with Expected Shortfall (ES) at a 97.5% confidence level to better capture tail risk and loss in extreme market conditions.

  3. A bank is classified as 'well capitalized' under U.S. PCA rules if its Total Risk-Based Capital ratio is at least:

    Answer: 10%

    A U.S. bank is 'well capitalized' under PCA if its Total Risk-Based Capital ratio is at least 10%, Tier 1 ratio at least 8%, and CET1 at least 6.5%.

  4. What is the primary distinction between the Standardized Approach (SA) and the Foundation IRB (F-IRB) approach for credit risk capital?

    Answer: SA uses supervisor-set risk weights; F-IRB uses bank-estimated PD with supervisor-set LGD and EAD

    Under F-IRB, banks estimate their own PD but use regulatory-prescribed values for LGD, EAD, and maturity; the SA uses entirely regulatory-set risk weights.

  5. Which component of regulatory capital absorbs losses only in liquidation and does NOT protect depositors on a going-concern basis?

    Answer: Tier 2 capital

    Tier 2 capital (e.g., subordinated debt) absorbs losses only in a gone-concern (winding-up) scenario, unlike CET1 and AT1 which absorb losses on a going-concern basis.

  6. The Credit Valuation Adjustment (CVA) capital charge, introduced under Basel III, addresses what type of risk?

    Answer: Risk of default by the bank's own counterparties in OTC derivatives

    The CVA charge captures the risk of mark-to-market losses on OTC derivative portfolios due to deterioration in counterparty creditworthiness.

  7. Under Basel IV (Basel III finalized), the output floor limits the reduction in risk-weighted assets (RWA) achievable through internal models. What is the output floor percentage?

    Answer: 72.5%

    Basel IV's output floor sets a minimum so that internally modeled RWA cannot fall below 72.5% of standardized approach RWA, limiting regulatory arbitrage through model optimization.