Which of the following statements about Basel III's treatment of risk-weighted assets (RWA) is correct?

hard Q10 of 15

Financial Awareness - Risk, Stability & Emerging Finance

ABasel III introduced stricter criteria for calculating RWA to better capture credit, market, and operational risks

BBasel III eliminated the use of RWA in capital calculations

CBasel III uses only credit risk for RWA calculation

DBasel III replaced RWA with leverage ratio exclusively

Step-by-Step Solution

Step 1: Understand RWA role in Basel III
Risk-weighted assets remain central to capital adequacy calculations under Basel III.
Step 2: Analyze Basel III changes
Basel III introduced more stringent and comprehensive criteria for calculating RWA, covering credit, market, and operational risks more accurately.
Step 3: Eliminate incorrect options
Basel III did not eliminate RWA or replace it exclusively with leverage ratio; it did not limit RWA to credit risk only.
Final Answer:
Basel III introduced stricter criteria for calculating RWA to better capture credit, market, and operational risks → Option A
Quick Check:
Basel III RWA calculation = Stricter and comprehensive criteria ✅

Quick Trick: Basel III refines RWA, does not eliminate it.

Common Mistakes:

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