Skip to content

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 planning process produces stress results, but senior management and the board receive only a summary showing the final capital ratio, without key assumptions, limitations, or sensitivity of results to model choices. Which weakness best describes this?

This is a governance weakness: the board lacks transparency on assumptions, limitations and sensitivities. Without them, directors cannot meaningfully challenge or approve the capital plan, so oversight is ineffective even if the headline ratio looks adequate.

  1. AInadequate governance and insufficient transparency of assumptions and limitations to the boardCorrect
  2. BExcessive reliance on external ratings
  3. COverly conservative risk weights
  4. DFailure to hold a liquidity buffer

Explanation

Boards must understand and challenge assumptions, uncertainty and limitations in capital plans. Receiving only a headline ratio prevents effective challenge, which is a governance weakness.

Did you get it right without looking?

One question tells you little. A timed set on Capital Planning at Large Bank Holding Companies: Supervisory Expectations and Range of Current Practice shows your real accuracy, how long you take and where you lose marks.

Practise Capital Planning at Large Bank Holding Companies: Supervisory Expectations and Range of Current PracticeFree diagnostic mock

More Capital Planning at Large Bank Holding Companies: Supervisory Expectations and Range of Current Practice questions