[Solved] Which of the following best describes the Capital Conservation Buffer under Basel III norms? — Ans: Additional capital banks must hold above minimum CAR to absorb losses during... | Financial Awareness

Financial Awareness - Risk, Stability & Emerging Finance

Which of the following best describes the Capital Conservation Buffer under Basel III norms?

AThe amount banks must invest in government securities

BMandatory cash reserves banks keep with RBI

CThe maximum loan amount banks can disburse

DAdditional capital banks must hold above minimum CAR to absorb losses during stress

Step-by-Step Solution

Step 1: Understand Capital Conservation Buffer
It is an extra capital buffer above minimum CAR to protect banks during financial stress.
Step 2: Analyze options
Only the option about additional capital to absorb losses matches the buffer's purpose.
Final Answer:
Additional capital banks must hold above minimum CAR to absorb losses during stress → Option D
Quick Check:
Capital Conservation Buffer = extra capital for loss absorption ✅

Quick Trick: Buffer = extra capital beyond minimum CAR

Common Mistakes:

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