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FRM Part II · FRM Exam Part II · Capital Planning at Large Bank Holding Companies: Supervisory Expectations and Range of Current Practice

A bank has CET1 of USD 45 billion and RWA of USD 500 billion (9.0%). Its internal capital policy sets a stressed trigger ratio of 7.0%. Under stress, cumulative net losses after pre-provision revenue are USD 12 billion and RWA fall to USD 450 billion with no capital actions. What is the maximum dividend and repurchase amount (USD billion) that keeps the stressed ratio at the trigger?

Stressed CET1 before actions is USD 33 billion; the 7% trigger on RWA of USD 450 billion requires USD 31.5 billion. The surplus, and so the maximum distributions, is USD 1.5 billion.

  1. A3.9Correct
  2. B1.5
  3. C21.5
  4. D1.9

Explanation

Stressed CET1 before actions = 45 - 12 = 33 billion. Required at 7% of 450 = 31.5 billion. Capacity = 33 - 31.5 = 1.5 billion. Check: 31.5/450 = 7.0%. So the correct figure is 1.5.

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