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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 capital plan reports only the stressed regulatory CET1 ratio and does not link the results to its internal capital goals or triggers. What is the main weakness from a supervisory perspective?

The main weakness is that stress results are not tied to internal capital goals and triggers, so there is no clear basis for escalation or management action. Regulatory ratios themselves are acceptable and comparison to thresholds is expected.

  1. AThe plan fails to show how stress results compare with internal limits that drive decisions and escalationCorrect
  2. BThe plan uses regulatory ratios, which are not allowed
  3. CStress results should never be compared to any threshold
  4. DThe plan should report only the leverage ratio

Explanation

Supervisors expect capital policy to define goals and triggers so stress results prompt defined actions and escalation. Without that link, results do not inform decisions. Regulatory ratios are appropriate and thresholds are expected.

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