Treasury, Capital, and Financial Reporting
Capital adequacy
Basel III established risk-weighted assets, the common equity tier 1 ratio, tier 1, and total capital ratios, plus leverage and liquidity buffers. Candidates should know that CET1 is the highest-quality capital and that risk weights vary by asset class-so a shift in portfolio mix changes capital needs even without new lending.
Interest-rate and liquidity risk
Asset-liability management matches rate-sensitive assets and liabilities. Duration measures sensitivity to rate changes. Traps ask which position benefits from rising rates-a liability-sensitive bank generally benefits, while an asset-sensitive bank is hurt.
Financial reporting
Know the basic statements and key controls: the balance sheet, income statement, statement of changes in equity, and cash flow statement. Financial reporting risk includes cutoff, valuation, and disclosure. The independent audit of financial statements is distinct from internal audit-questions often blur the two.
Regulatory reporting
Call reports, FR Y-9C, and other filings must reconcile to the general ledger. A common deficiency is manual adjustment without independent review.
Worked example
A bank shifts from Treasuries (low risk weight) to commercial loans (higher risk weight). Rule of thumb: risk-weighted assets rise, so CET1 ratio falls even if total assets are unchanged.
Traps to expect
Confusing capital ratios with liquidity ratios, or assuming internal audit signs off on financial statements-it does not; external auditors opine.