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Basel III Key Facts Mini Exam

Basel III regulations are currently being discussed and proposed (June 2010). They are constantly changing, but with this test you can update your knowledge of Basel III financial requirements and proposals.

Every month we create update questions, so keep coming back if you want to be in the loop.

Here's 5 questions, starting with the description of the proposals and the background and history and progression from Basel II.

Basel 3 Proposals- June 2010

1. Basel III can be described as ?
a the same as Basel II, but with an added proposal for banks to reduce Tier 1 capital requirement requirements to below current levels
b a proposal to separate propriety trading from the retail banking business. This is to help avoid a run on a bank i.e.when a majority of depositors attempt to withdraw deposits at the same time, leading to the potential collapse of the institution.
c proposed changes to regulations by the BCBS (Basel Committee of Banking Standards) to the current Basel II Rules to deliver a banking and financial system that acts as a stabilizing force on the real economy during financial stress including Credit Crunch type conditions
d a Swiss Tourist Authority Event celebrating the 3rd anniversary of Roger Federer's Good Food Academy in Basel

Answer: C

A key characteristic of the financial crisis was the inaccurate and ineffective
management of liquidity risk. In recognition of the need for banks to improve their liquidity risk management and control their liquidity risk exposures new proposals are being produced, commonly referred to Basel III or Basel 3.

Basel III are proposed changes to Basel II regulations put forward by the BCBS (Basel Committee of Banking Standards) to deliver a banking and financial system that acts as a stabilizing force for the real economy in highly stress tested conditions. These conditions can include systemic risk, withdrawals by depositors or concentration of risk etc.

Incorrect Answers

Answer B, the proposal to separate propriety trading from retail banking business, also known as the Volcker rule is only proposed in the USA.

Answer A, is incorrect as new regulations will likely increase Tier 1 capital requirements.

Answer D, I made that one up. But let me know if he actually does have an Academy!

2. Changes to Basel III regulation proposals are produced by who?
a

the Federal Reserve
b the ECB - European Central Bank
c the FSA - Financial Services Authority
d the BCBS


Answer: D is correct - Basel Committee on Banking Supervision

Incorrect Answers

Answer A : The Federal Reserve is a US institution, the FSA is in the UK and the ECB is the European Central Bank. They may be involved by being members who help shape the new proposals, but the committee is made up of representatives of many countries.

For Question 3, please scroll down.

Follow this link for question 3: Who forms the committee tasked with producing the new Basel III proposals?

  
     
         
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