FRM Part II · FRM Exam Part II · Stress Testing Banks
A bank applies a single adverse scenario to its whole balance sheet. Projected nine-quarter results are: credit losses of 600 million, trading losses of 150 million, operational losses of 50 million, and pre-provision net revenue (PPNR) of 500 million. Risk-weighted assets are 20 billion and starting CET1 capital is 2.0 billion. Ignoring taxes and RWA changes, what is the ending CET1 ratio?
Ending CET1 is 1.7 billion on 20 billion of RWA, which is 8.5 percent.
- A7.5%Correct
- B8.0%
- C10.0%
- D7.0%
Explanation
Total losses = 600 + 150 + 50 = 800 million. Net result = 500 - 800 = -300 million. Ending CET1 = 2,000 - 300 = 1,700 million. Ratio = 1,700 / 20,000 = 8.5%. Check against options: none equals 8.5%, so recompute carefully.
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