FRM Part I · FRM Exam Part I · Stress Testing
A bank starts a stress test with CET1 capital of $60 billion and risk-weighted assets (RWA) of $500 billion. Over the nine-quarter horizon, projected cumulative pre-provision net revenue is $40 billion, loan losses and other losses are $75 billion, and taxes and other adjustments are zero. Dividends and buybacks total $10 billion. RWA are projected to remain constant. What is the projected ending CET1 ratio?
Ending CET1 equals 60 plus 40 of revenue minus 75 of losses minus 10 of distributions, which is $15 billion. Dividing by constant RWA of $500 billion gives a projected CET1 ratio of 3.0%.
- A3.0%
- B6.0%Correct
- C8.0%
- D10.0%
Explanation
Ending CET1 = 60 + 40 - 75 - 10 = 15 billion. Ratio = 15/500 = 3.0%. Recheck: net change -45 billion, 60-45 = 15. So the correct answer is 3.0%.
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