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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 starts a projection with CET1 capital of $60 billion and risk-weighted assets (RWA) of $500 billion. Under its stress scenario, projected nine-quarter pre-provision net revenue is $25 billion, losses and provisions are $40 billion, and planned dividends are $6 billion. Assume no other changes and that RWA stay constant. What is the projected ending CET1 ratio?

Ending CET1 is 60 plus 25 minus 40 minus 6, or 39 billion, divided by 500 billion of RWA, giving 7.8 percent.

  1. A8.2%Correct
  2. B9.0%
  3. C12.0%
  4. D10.2%

Explanation

Ending CET1 = 60 + 25 - 40 - 6 = 39. Ratio = 39/500 = 7.8%. Recheck: 60+25=85; 85-40=45; 45-6=39; 39/500=7.8%. None of the options match, so the key must be corrected: the intended data yield 7.8%.

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