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FRM Part II · FRM Exam Part II · Stress Testing Banks

A supervisor reviewing a bank's CCAR submission finds that the bank's capital projections are numerically strong, but its scenario design, model governance, and use of stress results in decision-making are weak. Which conclusion is most consistent with the CCAR framework?

Under CCAR a bank can face an objection to its capital plan on qualitative grounds, such as weak scenario design, model governance or use of stress results, even when its projected post-stress capital ratios are adequate.

  1. AThe bank may receive an objection, including on qualitative grounds, despite adequate projected capital ratiosCorrect
  2. BThe bank will automatically pass because quantitative ratios exceed the minimums
  3. CThe qualitative assessment applies only to banks that fail quantitatively under DFAST
  4. DThe qualitative review was eliminated, and only post-stress ratios matter in CCAR

Explanation

CCAR has historically included both quantitative and qualitative assessments of capital planning processes, and a supervisor may object to a capital plan because of deficiencies in governance and risk management even if ratios are adequate.

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