I remember thinking that the CET1 minimum ratio is 4.5% (the highest requirement as per Basel III) and if you add to it the counter-cyclical buffer of 2.5% you would get 7%. The 8% CET1 is higher than the minimum requirement + the counter-cyclical buffer so no additional buffer is required
I was just checking BT's Basel III questions and I found the following (underlined the correct answer):
B12.6. After Basel 3 is fully phased-in (e.g., January 1st, 2019), if national authorities have no (zero) countercyclical buffer requirement, what will be the minimum capital requirement including the conservation buffer with respect to (i) common equity Tier 1, (ii) Tier 1 capital and (iii) total capital?
a) 4.5% (CE T1), 6.0% (T1) and 8.0% (total)
b) 7.0% (CE T1), 8.5% (T1) and 10.5% (total)
c) 8.0% (CE T1), 8.5% (T1), and 10.5% (total)
d) 8.0% (CE T1), 10.5% (T1), and 12.0% (total)
The question stated that the entity had 8% of common equity, so the first requirement of of 7% would be met, but it also stated that they had no other capital, so the 10.5% total would be breached.
Furthermore, I found the following question (underlined the correct answer)
B12.4. Which is TRUE about the capital conservation buffer?
a) When a bank’s capital levels fall within this range, the bank can continue to conduct (operate) business
b) When a bank’s capital levels fall within this range, the bank is constrained (restricted) with respect to dividends, share buybacks, and discretionary bonus payments to staff
c) When a bank’s capital levels fall within this range, the bank is “severely restricted” with respect to conducting business (operations)
d) The bank can elect to draw down the buffer in normal times if competitive demands warrant, including the need to maintain market share
I believe that is pretty much what one of the possible answers were.
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