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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 preparing its annual capital plan for submission to the Federal Reserve under the supervisory capital planning framework. Which of the following best describes the primary purpose of the capital plan under the supervisory expectations?

The capital plan should show that the bank holding company can keep operating as a financial intermediary and stay above minimum capital requirements over the planning horizon under both expected and stressful conditions. It is a forward-looking capital adequacy demonstration, not a dividend benchmark or liquidity test.

  1. ATo demonstrate that the firm can continue operating as a financial intermediary and meet minimum capital requirements under both expected and stressful conditions over a planning horizonCorrect
  2. BTo set the dividend payout ratio at the industry median so that shareholders receive uniform returns
  3. CTo replace the firm's internal stress testing with a single standardized supervisory scenario
  4. DTo prove that the firm holds enough liquid assets to meet 30 days of outflows

Explanation

The supervisory expectation is that a capital plan shows the firm can remain a viable intermediary and maintain capital above minimums, including under stress, over a multi-quarter horizon. It is not a dividend-benchmarking exercise, it does not replace internal stress testing, and the 30-day liquidity test is a liquidity measure, not capital planning.

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