The Basel Committee on Banking Supervision Considers Regulatory Loan Concentration

Multiple Choice

The Basel Committee on Banking Supervision considers regulatory loan concentration limits to individual borrowers as an issue of granularity.Which of the following statements is true in this context?

A) The issue of granularity means that if banks hold relatively large exposures to an individual borrower or sector to a reference portfolio they have devised, then risk weightings required in the capital to be held will be adjusted by the FI to reflect its levels of portfolio concentration or diversification.
B) The issue of granularity means that if banks hold relatively large exposures to an individual borrower or sector to a reference portfolio they have devised, then risk weightings required in the capital to be held will be adjusted up or down to reflect the levels of portfolio concentration or diversification.
C) The issue of granularity means that if banks hold relatively large exposures to an individual borrower or sector to a reference portfolio they have devised, then risk weightings required in the capital to be held will be adjusted up to reflect the levels of portfolio diversification.
D) The issue of granularity means that if banks hold relatively large exposures to an individual borrower or sector to a reference portfolio they have devised, then risk weightings required in the capital to be held will be adjusted down to reflect the levels of portfolio concentration.