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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 internal capital policy under supervisory expectations for capital planning. Which element is most consistent with a sound capital policy?

A sound capital policy sets internal minimum capital levels and target ratios, with triggers and escalation procedures when buffers approach those levels. It must also be governed by the board and include actions for shortfalls. Relying on regulatory minimums alone or omitting contingency actions falls short of expectations.

  1. AA stated minimum capital level and target ratios, with defined triggers and escalation when buffers fall toward themCorrect
  2. BA single regulatory minimum ratio applied without internal targets
  3. CA policy approved only by the treasury function without board review
  4. DA policy that omits actions for capital shortfalls to preserve flexibility

Explanation

Supervisory expectations call for a capital policy with internal minimum levels, targets, triggers and escalation, plus defined actions if capital falls short and board oversight. The other options omit governance, internal targets or contingency actions, which are expected features.

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