FRM Part I · FRM Exam Part I · Stress Testing
A bank's stress test shows a loss of USD 180 million under a severe scenario. The bank's CET1 capital is USD 1,200 million and risk-weighted assets are USD 10,000 million. Ignoring any other effects, what is the post-stress CET1 ratio, and is it above the internal trigger of 11%?
Post-stress CET1 capital is USD 1,020 million (1,200 minus 180). Divided by risk-weighted assets of USD 10,000 million, the ratio is 10.2%, which falls below the 11% internal trigger, so management action would be required.
- A10.2%, below the triggerCorrect
- B11.0%, exactly at the trigger
- C12.0%, above the trigger
- D10.8%, below the trigger
Explanation
Post-stress CET1 = 1,200 - 180 = 1,020. Ratio = 1,020 / 10,000 = 10.2%, which is below 11%. The 12.0% option is the pre-stress ratio. The 10.8% option would result from subtracting only 120.
Did you get it right without looking?
One question tells you little. A timed set on Stress Testing shows your real accuracy, how long you take and where you lose marks.
More Stress Testing questions
- Which statement about using stress testing alongside VaR is most accurate?
- A bank's stress test applies a severe equity market fall but assumes that correlations between asset classes stay at their long-run averages…
- A bank starts a stress test with CET1 capital of $60 billion and risk-weighted assets (RWA) of $500 billion. Over the nine-quarter horizon, …
- A risk manager notes that a stress test using historical scenarios, such as the 2008 crisis, may fail to capture future vulnerabilities. Whi…
- Under the EBA EU-wide stress test methodology, which feature is most characteristic of how the exercise is run?
- A supervisor designs the severely adverse scenario for a regulatory stress test. Which design choice is most consistent with the purpose of …