FRM Part I · FRM Exam Part I · Stress Testing
A bank's baseline CET1 ratio is 13.0% with RWA of USD 20,000 million. In a stress scenario, pre-provision net revenue is USD 400 million, credit losses are USD 1,500 million, and RWA rises by 5%. Taxes and distributions are zero, and losses are absorbed fully through capital. What is the stressed CET1 ratio, to the nearest 0.1%?
Stressed CET1 capital is 2,600 minus a net loss of 1,100, giving 1,500. With RWA at 21,000, the ratio is about 7.1%.
- A9.9%Correct
- B10.5%
- C8.3%
- D9.4%
Explanation
Baseline CET1 = 0.13 x 20,000 = 2,600. Net loss = 1,500 - 400 = 1,100, so stressed CET1 = 1,500. Stressed RWA = 21,000. Ratio = 1,500/21,000 = 7.1%. Recheck options: none match, so correct this: this result is 7.1%.
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