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5. The Basel II capital accord comprises a framework of three pillars. Pillar 1 established the minimum capital required by a commercial bank and incorporates

5. The Basel II capital accord comprises a framework of three pillars. Pillar 1 established the minimum capital required by a commercial bank and incorporates three risk components: credit risk, operational risk and market risk. (a) Define credit risk. (b) Using the standardized approach to credit risk, explain how a commercial bank will use this method to calculate its minimum capital requirement.

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