Module: | MODULE B: RISK MANAGEMENT
Q303: Calculate the minimum regulatory capital required under the original Basel I Accord framework of 1988, given the following data:
Total Risk-Weighted Assets for Credit Risk: ₹ 50,000 Crore.
Total Risk-Weighted Assets for Market Risk: ₹ 10,000 Crore.
Total Risk-Weighted Assets for Market Risk: ₹ 10,000 Crore.
✅ Correct Answer: B
The correct answer is B (₹ 4,000 Crore). Under the original Basel I Accord established in 1988, the regulatory capital framework was highly simplistic and focused exclusively on Credit Risk.
It completely ignored Market Risk and Operational Risk.
The framework introduced the Cooke Ratio, which mandated a minimum capital requirement of 8% of total Risk-Weighted Assets (RWA). Therefore, for the calculation: You must ignore the ₹ 10,000 Crore Market Risk RWA, as Basel I did not provide a capital charge for it.
Take the Credit Risk RWA: ₹ 50,000 Crore.
Apply the 8% Cooke Ratio: 8% of 50,000 = ₹ 4,000 Crore.
Options A, C, and D are incorrect mathematical outputs resulting from incorrectly including the market risk or using the wrong percentage.
It completely ignored Market Risk and Operational Risk.
The framework introduced the Cooke Ratio, which mandated a minimum capital requirement of 8% of total Risk-Weighted Assets (RWA). Therefore, for the calculation: You must ignore the ₹ 10,000 Crore Market Risk RWA, as Basel I did not provide a capital charge for it.
Take the Credit Risk RWA: ₹ 50,000 Crore.
Apply the 8% Cooke Ratio: 8% of 50,000 = ₹ 4,000 Crore.
Options A, C, and D are incorrect mathematical outputs resulting from incorrectly including the market risk or using the wrong percentage.