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    Question

    Which of the following Statements about Basel-III norms

    is/are correct? I- It is an international regulatory accord that introduced a set of reforms after the 2008 crisis. II- Basel-III asks banks to maintain a certain minimum level of capital and not lend all the money they receive from deposits. III- Additional Tier-1 capital was introduced in Basel-III norms  
    A Only I Correct Answer Incorrect Answer
    B I & II Correct Answer Incorrect Answer
    C II & III Correct Answer Incorrect Answer
    D Only III Correct Answer Incorrect Answer
    E I, II, and III Correct Answer Incorrect Answer

    Solution

    It is an international regulatory accord that introduced a set of reforms designed to improve the regulation, supervision and risk management within the banking sector, post 2008 financial crisis. Under the Basel-III norms, banks were asked to maintain a certain minimum level of capital and not lend all the money they receive from deposits. According to Basel-III norms banks' regulatory capital is divided into Tier 1 and Tier 2, while Tier 1 is subdivided into Common Equity Tier-1 (CET-1) and Additional Tier-1 (AT-1) capital. Common Equity Tier 1 capital includes equity instruments where returns are linked to the banks’ performance and therefore the performance of the share price. They have no maturity. Additional Tier-1 capital are perpetual bonds which carry a fixed coupon payable annually from past or present profits of the bank. They have no maturity, and their dividends can be cancelled at any time.

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