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

Under supervisory expectations for stress testing, a bank's senior management wants to use the program for more than a regulatory compliance exercise. Which use BEST reflects integration of stress testing into the bank's risk management?

Stress testing is best integrated when results inform risk appetite, limit setting, capital planning and strategic decisions. Board and senior management engagement ensures findings drive actions rather than serving only as a regulatory exercise run on request, delegated to modelers, or restricted to past events.

  1. ARunning the tests only when regulators request them
  2. BUsing results to inform risk appetite, limit setting, capital planning and strategic decisionsCorrect
  3. CDelegating the scenario design entirely to the modeling team without board input
  4. DLimiting scenarios to historical events that already occurred

Explanation

Effective programs feed into risk appetite, limits, capital and liquidity planning and strategy, with board and senior management involvement. Compliance-only, delegated, or purely historical programs do not integrate stress testing into decision-making.

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