Quiz: International Standards

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6 questions to check your understanding of the chapter “International Standards”. Choose an answer and select “Check answer” to see the answer and explanation. You can also open “Answer and explanation” to see the answer first.

1. Question 1

   The leaders' statement of the G20 Pittsburgh Summit in September 2009 called for several reforms of OTC derivatives. Which of the following was not in that statement, and was added to the reforms by the G20 in 2011?

   1. A.Setting higher capital requirements for contracts that are not centrally cleared
   2. B.Margin requirements for contracts that are not centrally cleared
   3. C.Reporting of OTC derivative contracts to trade repositories
   4. D.Clearing of standardized contracts through central counterparties by end-2012 at the latest
   Answer and explanation

   Answer: B

   What the G20 added in 2011 was margin requirements for contracts that are not centrally cleared.

   The 2009 statement had four items: standardization and platform trading, central clearing, trade reporting, and capital for contracts that are not centrally cleared. The other three options are among those items, and the deadline for central clearing (by end-2012 at the latest) is also part of the 2009 statement.

   Learn more: The G20 OTC Derivatives Reforms

2. Question 2

   As of October 2026, under Japan's Basel framework, banks with no overseas business offices are subject to the domestic standard rather than the international standard. Which of the following correctly describes banks under the domestic standard?

   1. A.The minimum level is the same 8% total capital ratio as under the international standard, and the capital buffers also apply
   2. B.The minimum level is the core capital ratio, and the capital buffers apply, but the net stable funding ratio (NSFR) does not
   3. C.The minimum level is the core capital ratio, and neither the capital buffers nor the net stable funding ratio (NSFR) apply
   4. D.The minimum level is the core capital ratio, and the leverage ratio and the liquidity coverage ratio (LCR) are not required even as data submitted to the authorities
   Answer and explanation

   Answer: C

   The minimum level for domestic-standard banks is a core capital ratio of 4%. It is a separate yardstick from the three minimum levels (Common Equity Tier 1 (CET1) ratio, Tier 1 ratio, and total capital ratio) required of banks under the international standard, and the capital buffers and the net stable funding ratio do not apply.

   8% is the minimum total capital ratio under the international standard. The leverage ratio and the liquidity coverage ratio (LCR) are not subject to a minimum level for domestic-standard banks; instead, these banks submit data to the authorities.

   Learn more: The Basel Framework and Derivatives

3. Question 3

   How does the margin framework of the Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) treat the exchange of initial margin on contracts that are not centrally cleared?

   1. A.It is exchanged on a gross basis, without netting between the parties
   2. B.Only the net amount, after offsetting the parties' requirements for each set of trades, is exchanged
   3. C.It must always be collected, even when the required amount is below 50 million euros
   4. D.Initial margin that has been received can be rehypothecated any number of times
   Answer and explanation

   Answer: A

   Initial margin is exchanged on a gross basis, without netting between the parties. While variation margin follows the current exposure, initial margin follows the expected future exposure.

   Exchanging only a net amount is the opposite of what the framework provides. Because there is a threshold under which collecting can be waived (below 50 million euros), margin does not always have to be collected. Rehypothecation is allowed only once, under strict requirements.

   Learn more: BCBS-IOSCO Margin Requirements for Uncleared Derivatives

4. Question 4

   As a hypothetical example, suppose the sensitivities-based method capital is 600 million yen, the default risk charge is 200 million yen, and the residual risk add-on is 100 million yen. As of October 2026, under the standardized approach of the Financial Services Agency notice under Article 14-2 of the Banking Act, how much is the market risk capital for the trading book?

   1. A.600 million yen
   2. B.900 million yen
   3. C.1,100 million yen
   4. D.800 million yen
   Answer and explanation

   Answer: B

   Capital under the standardized approach is the sum of the sensitivities-based method, the default risk charge, and the residual risk add-on, so 6 + 2 + 1 = 9 (in units of 100 million yen), or 900 million yen.

   600 million yen takes only the largest component, the sensitivities-based method, not the sum of the three. 800 million yen leaves out the residual risk add-on, and 1,100 million yen counts the default risk charge twice, so neither is the sum of the three components counted once each.

   Learn more: The Fundamental Review of the Trading Book (FRTB)

5. Question 5

   As a hypothetical example, a netting set has no collateral agreement, a total market value of +200 million yen, add-ons that total 300 million yen across the five asset classes, and no CVA recognized in financial accounting. As of October 2026, under Japan's notice, what is the exposure at default?

   1. A.500 million yen
   2. B.980 million yen
   3. C.580 million yen
   4. D.700 million yen
   Answer and explanation

   Answer: D

   The exposure at default is $1.4 \times (RC + PFE)$. With no collateral and a positive market value, the replacement cost is $RC = 200$ million yen, and the multiplier is 1, so the PFE equals the sum of the add-ons, 300 million yen. Therefore $1.4 \times (200 + 300) = 700$ million yen.

   500 million yen omits the alpha of 1.4. 580 million yen results from applying 1.4 only to RC, and 980 million yen from applying 1.4 twice, but 1.4 applies once, to the sum of RC and PFE.

   Learn more: The Standardized Approach for Counterparty Credit Risk (SA-CCR)

6. Question 6

   As of October 2026, among the methods a bank can use under Japan's notice to calculate the CVA risk equivalent amount, which method can recognize hedges of the counterparty's credit quality as well as hedges of market factors, and requires approval from the Commissioner of the Financial Services Agency?

   1. A.SA-CVA
   2. B.BA-CVA
   3. C.The simplified approach
   4. D.SA-CCR
   Answer and explanation

   Answer: A

   SA-CVA takes CVA and the sensitivities of the hedging instruments as inputs and can recognize both kinds of hedges. Using it requires the approval of the Commissioner of the Financial Services Agency.

   BA-CVA takes the exposure at default (EAD) of counterparty credit risk (CCR) and the effective maturity as inputs, does not recognize hedges of market factors, and needs no approval. The simplified approach recognizes neither kind of hedge and can be used by domestic-standard banks that meet the conditions. SA-CCR is a method for calculating the exposure at default for CCR, not a method for the CVA risk equivalent amount.

   Learn more: The CVA Risk Capital Charge