Economics • Banking & FinanceHard
Which of the following constitutes 'Tier-1 Capital' for a bank under Basel norms?
A. Common stock, disclosed reserves, and retained earnings that provide permanent loss absorption✓ Correct Answer
B. Subordinated term debt instruments and undisclosed revaluation reserves
C. Short-term unsecured borrowings from the interbank call money market
D. Commercial paper and certificate of deposits issued with a maturity under one year
💡 Solution & Explanation
Tier-1 capital represents a bank's core going-concern capital, consisting primarily of common stock, disclosed reserves, and retained earnings that absorb losses permanently without forcing the bank to cease operations. Subordinated debt instruments belong to Tier-2 supplementary capital because they rank lower in priority during liquidation. Maintaining adequate Tier-1 ratios is mandatory under global Basel safety standards.
More Economics Banking & Finance questions
- Which of the following bodies is entrusted with the statutory responsibility of regulating and developing…
- What does 'Base Rate' signify in the Indian banking system history?
- What is the primary purpose of the 'Countercyclical Capital Buffer (CCyB)' framework established for…
- What is 'Repo Rate' in the monetary policy framework of the Reserve Bank of India?
- Examine the regulatory framework of 'Prompt Corrective Action' administered by the Reserve Bank of India for…