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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 supervisor finds that a bank's capital plan is approved by the board with only a one-page summary, and that the board did not review key assumptions or the results of sensitivity analysis. Which expectation is most clearly unmet?

The unmet expectation is effective board oversight. Boards are expected to review and challenge the capital plan's material assumptions, sensitivities and limitations before approval. A one-page summary without key assumptions or sensitivity results prevents informed challenge and weakens governance of capital planning.

  1. AEffective board oversight with understanding and challenge of material assumptions and limitationsCorrect
  2. BMaintaining a leverage ratio above the regulatory minimum at all times
  3. CUse of a standardized approach for all risk types
  4. DDistribution of dividends at a constant payout ratio

Explanation

Supervisory expectations hold the board responsible for reviewing and approving the capital plan, including understanding its key assumptions, uncertainties and sensitivity results. A superficial summary prevents meaningful challenge. The other options are not the governance expectation described.

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