Question

Countercyclical capital buffers may be:

1. Set higher by the bank regulator during periods of financial system stress and lower or even removed during subsequent periods of build-up of excessive credit systemic risk.

2. Generally set above minimum Tier-1 capital ratios during periods of excessive private

   sector credit growth.

3. Able to have some influence on dampening extremes in the credit cycle through their

   effect on overall funding costs although their primary role is to increase financial

   system resilience.

4. None of the answers.

5. All of the answers.

Question 2:

Leverage ratios for banks:

1. Measure the extent to which a bank has sufficient capital relative to the risk of its business activities (i.e., its risk-weighted assets).

2. Measure the extent to which a bank has financed its assets with equity (Tier 1 capital).

3. Tend to be much lower in comparison to those of firms in other industries.

4. May be subject to a minimum regulatory requirement, normally set at a level higher

   than the risk-based (Tier-1) capital ratios.

5. All of the answers.

Answer 1

Q - 1

The correct answer is the last option i.e All of the answers.

Countercyclical capital buffers have all the characteristics listed in the first three options. Hence, the correct answer is the last option.

Q - 2

The correct answer is the last option i.e All of the answers.

The different leverage ratios of the banks do encompass all that has been talked about in the first three options.