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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 with common equity tier 1 (CET1) capital of USD 60 billion and risk-weighted assets (RWA) of USD 600 billion. Under its stress scenario, projected pre-provision net revenue is USD 20 billion, losses and provisions are USD 35 billion, and planned dividends and repurchases are USD 8 billion. RWA are projected to rise to USD 620 billion. What is the projected stressed CET1 ratio at the end of the horizon?

Ending CET1 is 60 plus 20 minus 35 minus 8, equal to USD 37 billion, divided by stressed RWA of USD 620 billion, giving about 6.0%.

  1. A7.4%Correct
  2. B8.5%
  3. C9.7%
  4. D10.0%

Explanation

Ending CET1 = 60 + 20 - 35 - 8 = 37 billion. Ratio = 37/620 = 5.97%. Recheck: 60+20=80; 80-35=45; 45-8=37; 37/620=5.97%, so none of the listed options matches; the correct figure is 6.0%.

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