FRM Part II · FRM Exam Part II · Governance
A bank's board approves its credit risk appetite statement. Which of the following best describes the board's primary responsibility in the credit risk governance framework?
The board's primary role is to set the bank's overall credit risk appetite and oversee senior management's implementation of consistent policies. Loan approvals, model calibration and daily limit monitoring are delegated to management, credit committees and risk functions rather than handled directly by the board.
- AApproving individual loan applications above a set size to ensure consistent underwriting
- BSetting the overall credit risk appetite and overseeing that senior management implements policies consistent with itCorrect
- CCalibrating the internal rating model's probability of default parameters
- DMonitoring daily limit breaches on each counterparty exposure
Explanation
The board sets the risk appetite and strategic direction and oversees management's implementation. Approving individual loans, calibrating models and daily limit monitoring are executive or specialist functions delegated to management, credit committees, and risk units.
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