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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

During a review of a large bank holding company's capital planning, examiners find that loss estimates for the stress scenario are produced by separate business lines using different assumptions, with no central challenge or reconciliation. Which supervisory concern is most relevant?

The main concern is weak aggregation and governance. Capital planning should use consistent enterprise-wide assumptions with central, independent challenge. When business lines use different assumptions and nobody reconciles them, the resulting loss estimates are unreliable and the board cannot trust the overall capital adequacy conclusion.

  1. AWeak aggregation and governance of the capital planning process, leading to inconsistent and unchallenged estimatesCorrect
  2. BCapital distributions being too conservative
  3. CExcessive use of external credit ratings in the process
  4. DInsufficient dividend payments to shareholders

Explanation

Sound practice requires a consistent, enterprise-wide process with independent review and challenge of assumptions. Fragmented estimates with no reconciliation show weak governance and aggregation. Conservative distributions or dividend levels are not the issue described.

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