Hi Tutor, please assist with the below question (business of banking subject)

QUESTION 1

Banks are exposed to various types of risk. Discuss any SIX (6) types of risk (see below) that could affect the banks position.

(30 marks)

1. Credit risk 2. Market risk 3. Operational risk 4. Liquidity risk 5. Business risk 6. Reputational risk 7. Systemic risk 8. Moral hazard

QUESTION 2

Explain what are the two concern areas and the reform measure under the Basel III reform package to reflect a bank as strong and have a global capital standard.

Note: The two concern areas are capital and liquidity. Discuss the key reform measures listed in the pic below:

(25 marks)

Areas Reform measures Capital Raise the quality, consistency and transparency of the capital base so that banks are better able to absorb losses on both a going concern and a gone concern basis. . Strengthen capital requirements for counterparty credit risk exposures arising from derivatives and securities financing activities. . Raise the level of minimum capital requirements, particularly for Tier-1 capital and common equity. - Incentivise the conservation of capital through the build-up of capital buffers above the minimum requirement which can be drawn down by individual banks as losses are incurred. Promote the build-up of counter-cyclical capital buffers at the system level to protect the banking sector from periods of excessive credit growth and thus maintain the flow of credit in the economy during a downturn. Introduce a non-risk-based leverage ratio to reinforce risk-based requirements and constrain the build-up of leverage, thus mitigating the effects of excessive deleveraging in the banking system during distress periods. Liquidity - Introduce a Liquidity Coverage Ratio (LCR) to ensure that banks have sufficient high quality liquid resources to survive an acute stress scenario lasting a month. - Introduce a Net Stable Funding Ratio (NSFR) to promote resilience over a longer-term horizon by creating incentives for banks to fund activities with more stable sources of funding on an ongoing basis. Table 3.5 Elements of the Basel III Reform Package Areas Reform measures Capital Raise the quality, consistency and transparency of the capital base so that banks are better able to absorb losses on both a going concern and a gone concern basis. . Strengthen capital requirements for counterparty credit risk exposures arising from derivatives and securities financing activities. . Raise the level of minimum capital requirements, particularly for Tier-1 capital and common equity. - Incentivise the conservation of capital through the build-up of capital buffers above the minimum requirement which can be drawn down by individual banks as losses are incurred. Promote the build-up of counter-cyclical capital buffers at the system level to protect the banking sector from periods of excessive credit growth and thus maintain the flow of credit in the economy during a downturn. Introduce a non-risk-based leverage ratio to reinforce risk-based requirements and constrain the build-up of leverage, thus mitigating the effects of excessive deleveraging in the banking system during distress periods. Liquidity - Introduce a Liquidity Coverage Ratio (LCR) to ensure that banks have sufficient high quality liquid resources to survive an acute stress scenario lasting a month. - Introduce a Net Stable Funding Ratio (NSFR) to promote resilience over a longer-term horizon by creating incentives for banks to fund activities with more stable sources of funding on an ongoing basis. Table 3.5 Elements of the Basel III Reform Package