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

A bank holding company's stress test shows its minimum projected CET1 ratio is 5.0% in quarter 6 of the planning horizon, against a 4.5% minimum requirement. Management proposes to meet an internal buffer by cutting planned share repurchases. Which view is most consistent with supervisory expectations?

Planned dividends and repurchases must be reflected in the stress projections, and the plan must show capital stays above minimums after those actions. Contingency actions should be identified and credible under stress, rather than being assumed away or excluded because they are discretionary.

1. ACapital actions can be treated as fixed because they are discretionary and need not be reflected in projections
2. BPlanned capital actions must be included in the projections, and the plan should show the firm remains above minimums after those actions, with contingency actions identified that are credible under stressCorrect
3. COnly dividends should be modeled; repurchases are excluded because they are reversible
4. DCapital actions should be assumed to be cut to zero automatically in stress to guarantee compliance