Economics • Banking & FinanceHard
Analyze the operational features of 'Basel III' capital adequacy norms. Which of the following constitutes 'Tier 1 Capital' under this framework?
A. Subordinated term debt instruments and general loan-loss provisions
B. Common Equity Tier 1 capital and disclosed reserves, along with qualifying non-common equity instruments✓ Correct Answer
C. Revaluation reserves arising from the revaluation of fixed bank assets
D. Short-term unsecured commercial paper issued in the domestic money market
💡 Solution & Explanation
Tier 1 capital under Basel III comprises Common Equity Tier 1 capital, which includes common shares and retained earnings, plus additional tier 1 instruments that absorb losses on a going-concern basis. Subordinated debt and general provisions form part of Tier 2 capital, which provides gone-concern loss absorption. Basel III norms were introduced internationally to strengthen bank capital requirements and introduce new regulatory requirements on bank liquidity and bank leverage. Capital conservation buffers are an integral component of this supervisory architecture.
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