Skip to content

FRM Part II · FRM Exam Part II · Capital Planning at Large Bank Holding Companies: Supervisory Expectations and Range of Current Practice

Which practice best reflects strong governance over a large BHC's stress testing used for capital planning?

Strong governance means the board and senior management review scenarios, assumptions and results, challenge them effectively, and use the outcomes in capital decisions. Keeping stress tests separate from decision making or freezing assumptions weakens their usefulness.

  1. ASenior management alone approves scenarios with no board involvement
  2. BBoard and senior management review scenarios, key assumptions and results, and use them to inform capital decisions with effective challengeCorrect
  3. CStress results are produced for regulators but kept separate from business decisions
  4. DAssumptions are fixed for several years to ensure comparability

Explanation

Supervisory expectations call for board and senior management engagement, effective challenge of assumptions, and use of results in capital decisions. Separating results from decisions or freezing assumptions undermines relevance.

Did you get it right without looking?

One question tells you little. A timed set on Capital Planning at Large Bank Holding Companies: Supervisory Expectations and Range of Current Practice shows your real accuracy, how long you take and where you lose marks.

Practise Capital Planning at Large Bank Holding Companies: Supervisory Expectations and Range of Current PracticeFree diagnostic mock

More Capital Planning at Large Bank Holding Companies: Supervisory Expectations and Range of Current Practice questions