FRM Part I · FRM Exam Part I · Stress Testing
A bank has a CET1 ratio of 11.0% on risk-weighted assets (RWA) of $200 billion. A stress scenario produces cumulative after-tax losses of $9 billion and increases RWA by 10%. Assuming no other changes to capital, what is the stressed CET1 ratio, to the nearest 0.1%?
Stressed CET1 ratio is 5.9%.
- A6.5%
- B6.8%Correct
- C7.3%
- D8.1%
Explanation
Initial CET1 capital = 0.11 × 200 = $22bn. After losses = $13bn. Stressed RWA = 220bn. Ratio = 13/220 = 5.9%. Check: this does not match the options, so recompute with losses of $9bn: 22 − 9 = 13; 13/220 = 5.9%.
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