CBA Risk Management 2 — Questions and Answers
Question 1: Which risk management framework is most widely adopted by U.S. banks for enterprise-wide risk governance?
- ISO 31000
- COSO ERM (Correct answer)
- Basel III Pillar 1
- NIST Cybersecurity Framework
Correct answer: COSO ERM
COSO ERM provides a widely adopted enterprise risk management framework that aligns risk with strategy and performance.
Question 2: Concentration risk in a loan portfolio is BEST mitigated by:
- Increasing loan loss reserves
- Diversifying exposures across industries and geographies (Correct answer)
- Raising minimum credit scores for borrowers
- Shortening loan maturities
Correct answer: Diversifying exposures across industries and geographies
Diversifying exposures reduces the risk that losses in one sector or region will disproportionately impact the portfolio.
Question 3: A bank's net interest margin (NIM) is primarily affected by which type of risk?
- Credit risk
- Operational risk
- Interest rate risk (Correct answer)
- Liquidity risk
Correct answer: Interest rate risk
Interest rate risk affects the difference between interest earned on assets and interest paid on liabilities, directly impacting NIM.
Question 4: Under Basel III, the Liquidity Coverage Ratio (LCR) requires banks to hold enough high-quality liquid assets to survive a stress scenario lasting:
- 7 days
- 30 days (Correct answer)
- 60 days
- 90 days
Correct answer: 30 days
The LCR mandates that banks hold sufficient HQLA to cover net cash outflows over a 30-day stress period.
Question 5: Which qualitative risk tool helps a bank identify and prioritize risks by plotting likelihood against impact?
- Control Self-Assessment
- Heat map / Risk matrix (Correct answer)
- Key Risk Indicator dashboard
- Scenario analysis
Correct answer: Heat map / Risk matrix
A heat map (risk matrix) visually prioritizes risks by mapping probability on one axis and impact on the other.
Question 6: The 'three lines of defense' model assigns primary risk ownership to:
- Internal audit
- Risk management function
- Business line management (Correct answer)
- Board of directors
Correct answer: Business line management
The first line of defense consists of business line managers who own and manage risks in their day-to-day operations.
Question 7: Stress testing differs from traditional sensitivity analysis because stress testing:
- Uses only historical data
- Examines extreme but plausible scenarios beyond normal model ranges (Correct answer)
- Focuses solely on market risk
- Is required only for community banks
Correct answer: Examines extreme but plausible scenarios beyond normal model ranges
Stress testing evaluates a bank's resilience under severe, tail-risk scenarios that go beyond standard statistical ranges.
CBA Risk Management 2
Which risk management framework is most widely adopted by U.S. banks for enterprise-wide risk governance?