Banking · Capital Adequacy & Basel Norms
Capital buffers above minimum regulatory requirements are often maintained because institutions may face unexpected stress beyond modeled conditions. The broad purpose of such buffers is to:
- 1make asset classification norms irrelevant
- 2eliminate all liquidity risk
- 3absorb unexpected losses and maintain solvency during financial stress✓
- 4maximize payout capacity in all years
Correct answer
absorb unexpected losses and maintain solvency during financial stress
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