Financial Awareness - Risk, Stability & Emerging Finance
Which of the following is NOT a component of the Capital Adequacy Ratio (CAR) under Basel norms?
Which of the following is NOT a component of the Capital Adequacy Ratio (CAR) under Basel norms?
medium Q4 of 15
Step-by-Step Solution
Step 1: Understand CAR components
CAR is calculated as the ratio of a bank's capital to its risk-weighted assets.Step 2: Recall capital tiers
Basel III eliminated Tier 3 Capital; only Tier 1 and Tier 2 capitals are considered in CAR calculation.Step 3: Analyze options
Tier 3 Capital is no longer recognized under Basel III, so it is not a component of CAR.Final Answer:
Tier 3 Capital → Option DQuick Check:
Tier 3 Capital excluded from CAR = True ✅
Quick Trick: Tier 3 Capital phased out in Basel III.
Common Mistakes:
- Assuming Tier 3 Capital still counts in CAR.
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