The Basel III capital accord has a framework that includes three pillars. The first pillar explains the minimum capital required by a commercial bank and incorporates three risk components: credit risk, operational risk and market risk. Discuss the approaches that may be used to measure the credit risk capital adequacy component of Pillar 1. Using the standardized approach to credit risk, explain, with an example, how a commercial bank can use this method to calculate its minimum capital requirement.

[4 marks]

B. Assume that your supervisor at YTM Financials is pleased with your explanations written in your memo. However, in a meeting with you, they suggested that YTM should never consider securitising Car Loan products. Respond to your supervisor with a short report by explaining two benefits and two costs of securitising car loans. [4 marks]

C. One of your junior colleagues at TBC Bank commented in a meeting that Australian banking practices have changed a lot due to deregulation. Write a short report by evaluating this statement with a consideration to an Australian banks asset and liability management function.