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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

Which practice would supervisors most likely regard as a strength, rather than a weakness, in a large bank holding company's capital planning process?

Board review and approval of the capital plan and its key assumptions, supported by independent challenge, is a strength. Supervisors expect strong governance, whereas static policies, partial risk identification and excluding hard-to-quantify risks are recognized weaknesses in capital planning.

  1. AThe board reviews and approves the capital plan and key assumptions after receiving independent challengeCorrect
  2. BCapital policy is set once and not revisited
  3. CRisk identification is performed only for the largest business line
  4. DStress scenarios exclude risks that are hard to quantify

Explanation

Active board oversight with independent challenge is a core expectation. The other options reflect stale policy, incomplete risk identification and omission of hard-to-quantify risks, all recognized weaknesses.

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