Question

Which of the following differences between BASEL III and BASEL II are not true: I. Basel III strengthened Basel II capital requirements by increasing CET1 capital to 6% of a bank's total assets. II. Basel III established two new financial liquidity requirements, the Liquidity Coverage Ratio and the Net Stable Funding Ratio. III. Basel III established a minimum leverage ratio of Tier 1 Capital to total exposure of 3%. IV. Basel III required a new "discretionary counter-cyclical buffer" of 2.5% of RWA.

Answer 1

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The cornerstone of the Basel III framework is enhanced risk-weighted capital requirements (RWR). Compared with pre-crisis regulations, the RWR have been substantially tightened for all three of their components: the RWR numerator (i.e. the definition and quality of bank capital), the denominator (i.e. the computation of risk weighted assets (RWA)), and the required capital ratio itself. Banks now have to (i) comply with a minimum RWR of 4.5% Common Equity Tier 1 (CET1) capital to RWA; (ii) meet a 6% Tier 1 capital ratio (comprising a more broadly defined Tier 1 capital element as numerator); and (iii) maintain an additional capital conservation buffer of 2.5% (in terms of CET1 capital to RWA).

So option 1 "Basel III strengthened Basel II capital requirements by increasing CET1 capital to 6% of a bank's total assets." is not TRUE