FRM Part I · FRM Exam Part I · Stress Testing
A bank's trough CET1 ratio under a severely adverse scenario is 8.0% with starting CET1 of $50 billion and constant RWA of $500 billion. Starting CET1 ratio is 10.0%. The bank then assumes RWA will instead rise 10% in the scenario, while the capital decline is the same dollar amount. What is the new trough CET1 ratio, to the nearest 0.1%?
Trough capital is 8% of $500 billion, or $40 billion. If RWA grow 10% to $550 billion while capital losses stay the same, the ratio becomes 40 divided by 550, about 7.3%. Higher RWA lowers the ratio.
- A7.3%Correct
- B7.5%
- C8.0%
- D8.8%
Explanation
Trough CET1 at constant RWA = 8% x 500 = 40 billion (a 10 billion decline). With RWA up 10%, RWA = 550 billion. New ratio = 40/550 = 7.27%, about 7.3%. Option 8.8% wrongly reduces RWA; 8.0% ignores the RWA growth.
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