Economics • Banking & FinanceMedium
What does the term 'Capital Conservation Buffer (CCB)' under Basel III norms require banks to maintain?
A. A buffer of high-quality liquid assets to survive a 30-day severe stress scenario.
B. An extra layer of Tier-1 capital above the minimum regulatory capital requirement to absorb losses during periods of financial stress.✓ Correct Answer
C. A fixed reserve fund exclusively meant for settling interbank clearing transactions.
D. An emergency reserve deposited directly with the International Monetary Fund.
💡 Solution & Explanation
The Capital Conservation Buffer under Basel III frameworks requires commercial banks to maintain an additional layer of high-quality Tier-1 capital above minimum regulatory capital ratios to absorb potential losses during periods of severe financial stress. Failure to maintain this buffer triggers restrictions on discretionary capital distributions like dividend payments and executive bonuses.
More Economics Banking & Finance questions
- How do District Central Cooperative Banks (DCCBs) function within the rural credit delivery mechanism of…
- Which nationalized commercial bank acts as the lead bank responsible for coordinating credit plans in several…
- What is the primary function of the 'Deposit Insurance and Credit Guarantee Corporation (DICGC)' in India?
- How does an increase in the Statutory Liquidity Ratio (SLR) impact the lending capacity of commercial banks?
- Which institutional mechanism was established to provide financial inclusion and doorstep banking services in…