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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's baseline scenario produces a minimum projected CET1 ratio of 11.0%, while its severely adverse scenario produces 7.0%. The internal minimum buffer policy requires CET1 of at least 8.0% under stress, and RWA is 250 billion in the stress path. Assuming RWA stays constant and no other actions, what additional CET1 capital is needed to meet the stress policy?

The shortfall is one percentage point of 250 billion RWA, which equals 2.5 billion. The baseline result is irrelevant because the policy minimum applies to the stress path.

  1. A2.5 billion
  2. B5.0 billionCorrect
  3. C10.0 billion
  4. D7.5 billion

Explanation

Shortfall is 8.0% − 7.0% = 1.0 percentage point of 250 billion RWA = 2.5 billion. The baseline ratio is irrelevant to the stress requirement. Correcting: the required amount is 2.5 billion.

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