Acronyms
What is RWA?
Risk Weighted Assets
This international accord sets standards for capital adequacy, stress testing, and market liquidity risk.
Basel III Accords
What is Capital?
Equity a bank is required to hold as a safety cushion against financial losses.
Exposure at Default x Risk Weight Percent
Risk Weighted Assets
What is the regulatory minimum CET1 Ratio?
10.7%
What is CCF?
Credit Conversion Factor
This regulatory body oversees bank holding companies and implements capital rules and stress testing in the U.S.
The Federal Reserve
How is the Stress Capital Buffer (SCB) determined?
Determined by the results of the Federal Reserve’s stress test CCAR. Reflects how much capital a bank would lose under stress.
CET1 + Tier1 + Tier2
Total Capital
What 2 actions can you take to raise capital?
1. Issue shares
2. Issue Preferred Stocks or Subordinated Debt
What does G-SIB stand for?
Global Systematically Important Bank
This U.S. act was passed in 2010, requiring banks to have a “living will” to prevent tax-payer bail outs during financial stress.
Dodd-Frank Act
What are the 3 Basel Pillars?
Minimum Capital (Capital Ratios), Supervisory Review (Regulation & Stress Testing), Market Discipline (Transparency & Governance)
Balance sheet amount + off-balance sheet x CCF
Exposure at Default (EAD)
What 3 actions can you take to lower capital?
1. Pay common dividends
2. Buy back shares
3. Redeem Preferred Stock or Subordinated Debt
What does CCAR stand for?
Comprehensive Capital Analysis & Review
What global event triggered the creation of the Basel III Accords?
The 2008 Financial Crisis
What are the three types of risk according to the Basel Capital Rules?
General Credit Risk, Counterparty Risk, Market Risk
CCF for unconditionally cancellable agreement?
0%
How much is the management buffer?
0.5%
What is TLAC?
Total Loss-Absorbing Capital
Besides Bank of America, name 5 of the 7 other GSIBs in the United States.
JPMorgan, Citigroup, Wells Fargo, Goldman Sacs, Morgan Stanley, Bank of New York Mellon, State Street
A measure of a bank’s total exposures (on and off-balance sheet) without using risk weights. Ensures banks hold capital against everything they own or commit to, not just risky stuff. It prevents banks from holding massive low-risk exposures like government bonds without holding capital.
Supplementary Leverage Exposure (LSE)
Stress test losses + 4 quarters of dividends equals
Stress Capital Buffer (SCB)
A strategy for rebalancing or dismantling a large bank without causing harm to taxpayers or the global financial system.
“living will”