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FRM Part II · FRM Exam Part II · Integrated Risk Management

A bank runs a severe scenario. Stressed credit losses are 400 million, trading losses are 250 million, and operational risk losses are 100 million. The bank adds the three figures, then notes that pre-provision net revenue (PPNR) under stress is 300 million. Starting CET1 capital is 1,500 million, and risk-weighted assets are a constant 12,500 million. Ignoring taxes and other effects, what is the stressed CET1 ratio?

Total stressed losses of 750 million are offset by PPNR of 300 million, giving a net capital reduction of 450 million. CET1 falls from 1,500 to 1,050 million, and dividing by 12,500 million of risk-weighted assets gives a stressed ratio of 8.4 percent.

  1. A8.0%
  2. B9.2%Correct
  3. C10.4%
  4. D12.0%

Explanation

Total losses are 400 + 250 + 100 = 750 million. Net of PPNR of 300 million, the capital hit is 450 million. Stressed CET1 is 1,500 - 450 = 1,050 million, and 1,050 / 12,500 = 8.4%. Recomputing gives 8.4%, which is not listed, so the stated options must be rechecked: none match, hence this item is invalid.

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