FRM Part II · FRM Exam Part II · Capital Planning at Large Bank Holding Companies: Supervisory Expectations and Range of Current Practice
The board of a large bank holding company reviews its annual capital plan. Which board responsibility is most consistent with supervisory expectations regarding internal controls and oversight of capital planning?
The board should approve the capital plan and its assumptions after being informed of risks, uncertainties, and limitations, and make sure material weaknesses are fixed. It does not build forecasts or validate models itself, and receiving only the final capital ratio would be inadequate oversight.
- AApprove the capital plan and its assumptions after receiving information on risks, uncertainty, and limitations, and ensure that material weaknesses are addressedCorrect
- BPrepare the detailed loss forecasts for each portfolio
- CPerform the independent validation of all models personally
- DDelegate all review to management and receive only the final capital ratio
Explanation
The board is expected to review and approve the capital plan, understand key assumptions, risks, and limitations, and make sure that identified weaknesses are remediated. Building forecasts or validating models is a management and independent function, and receiving only the final ratio is inadequate oversight.
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