2016-FRR Exam Dumps | Under Basel III, what is divided by Total Exposure to calculate the bank's Leverage Ratio?

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Financial Risk and Regulation (FRR) Series
GARP.2016-FRR.v2025-06-21.q161
Question 115

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Question 115/161

Under Basel III, what is divided by Total Exposure to calculate the bank's Leverage Ratio?

A. Total regulatory capital

B. Tier 3 Capital

C. Tier 2 Capital

D. Tier 1 Capital

Correct Answer: D

Comprehensive and Detailed In-Depth Explanation:
The Basel III Leverage Ratio is a non-risk-based measure designed to limit excessive leverage in the banking system. It is calculated as:
Leverage Ratio = Tier 1 Capital / Total Exposure.
Tier 1 Capital (comprising common equity Tier 1 and additional Tier 1 capital) is divided by Total Exposure, which includes on-balance-sheet assets, derivatives, and off-balance-sheet items (adjusted for credit conversion factors). Basel III introduced this ratio to complement risk-based capital requirements, with a minimum threshold of 3%. Total regulatory capital includes Tier 2, and Tier 3 capital was eliminated under Basel III, making Tier 1 Capital the correct numerator.
Reference:BCBS, "Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems," December 2010, para. 151-167; GARP FRR Study Notes, Regulatory Framework Section.
Below is the second batch of 10 questions (353-362) formatted as requested, with verified answers and detailed explanations based on official Financial Risk and Regulation (FRR) documents, primarily referencing Basel frameworks from the Global Association of Risk Professionals (GARP) and Basel Committee on Banking Supervision (BCBS) guidelines. Typographical errors have been corrected, and answers have been double-checked for accuracy.

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