economics medium MCQ

Under the Basel III international regulatory framework, what is the primary purpose of the 'Capital Conservation Buffer' (CCB)?

  1. To protect banks against systemic risks arising from cross-border lending
  2. To ensure banks build up capital outside periods of stress that can be drawn down when losses are incurred
  3. To penalize banks that hold excessive amounts of sovereign debt
  4. To guarantee depositors that their savings are 100% insured against bank failures

Answer: To ensure banks build up capital outside periods of stress that can be drawn down when losses are incurred

The CCB is an additional layer of high-quality capital (usually 2.5% of risk-weighted assets) that banks must hold during normal economic times. The objective is to create a financial cushion that allows banks to absorb losses during periods of economic or financial stress without breaching their minimum capital requirements or requiring taxpayer bailouts.

Topic Banking - Regulation
Exam Relevance Banking, UPSC Prelims, SSC
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