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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 large bank holding company is drafting its capital policy under supervisory expectations for capital planning. Which element is most consistent with what supervisors expect the policy to contain?

A sound capital policy sets internal capital goals and limits and defines how capital actions like dividends and repurchases are approved and reviewed, with board oversight. Relying only on regulatory minimums, rare reviews, or business-line delegation falls short of supervisory expectations.

  1. AOnly the minimum regulatory ratios, since internal targets create disclosure risk
  2. BA single point-in-time ratio target reviewed once every five years
  3. CInternal capital goals and limits, with a defined process for approving and reviewing capital actions such as dividends and repurchasesCorrect
  4. DDividend and repurchase decisions delegated entirely to business line heads without board involvement

Explanation

Supervisory expectations call for a capital policy that sets internal goals and minimum levels, and the governance for capital actions including dividends and buybacks. Policies limited to regulatory minimums, reviewed rarely, or delegated away from the board do not meet this standard.

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