FRM Part II · FRM Exam Part II · Integrated Risk Management
A bank's board wants its risk appetite statement to be usable by business lines in day-to-day decisions. Which feature would best make the statement operational rather than purely aspirational?
Cascading quantitative limits and tolerances to business units, linked to strategy and capital, makes a risk appetite statement operational. Qualitative statements cannot be monitored, a single annual figure does not guide daily decisions, and a loss history describes the past rather than setting acceptable levels of risk-taking.
- AA qualitative description of the bank's desire to be prudent and well regarded
- BQuantitative risk limits and tolerances cascaded to business units, linked to the bank's strategy and capitalCorrect
- CA single enterprise-wide VaR figure reviewed by the board once a year
- DA list of past loss events grouped by Basel event type
Explanation
An operational risk appetite statement translates board-level appetite into measurable limits and tolerances that business units can apply, tied to strategy and capital. Purely qualitative language cannot be monitored or breached. A single annual VaR figure is not cascaded to decisions, and a loss event list is historical information rather than an appetite.
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