Economics • Banking & FinanceHard
Under the Basel III regulatory framework implemented for commercial banks, which of the following is classified as 'Tier 1 Capital'?
A. Subordinated term debt instruments with an original maturity exceeding five years
B. General provisions and loan loss reserves held against standard performing assets
C. Common Equity Tier 1 capital comprising disclosed reserves and paid-up equity share capital✓ Correct Answer
D. Revaluation reserves arising from the periodic upward revaluation of fixed bank properties
💡 Solution & Explanation
Tier 1 capital under Basel III norms primarily consists of Common Equity Tier 1 capital, which includes common shares, stock surplus, and retained earnings, providing the highest quality of loss absorption. Subordinated debt and revaluation reserves typically fall under Tier 2 capital due to their lower loss-absorbing capacity during liquidation. Capital adequacy ratios ensure banks maintain sufficient capital buffers against unexpected credit shocks.
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