Risk Management Flashcards
7 cards from real CBA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Risk Management flashcards as text
A bank discovers its loan loss model systematically underestimates defaults during economic downturns. This is an example of:
Answer: Model risk
Model risk arises when a model produces inaccurate outputs due to flawed assumptions, errors, or misuse.
Which metric measures the potential loss on a trading portfolio over a given time horizon at a specified confidence level?
Answer: Value at Risk (VaR)
VaR quantifies the maximum expected loss over a specific period at a given confidence level (e.g., 99% over one day).
Under the OCC's heightened standards for large banks, which governance body bears ultimate responsibility for the bank's risk appetite?
Answer: Board of Directors
The Board of Directors is ultimately responsible for approving and overseeing the bank's risk appetite framework.
A bank experiences a sudden large outflow of deposits due to negative social media rumors. This scenario represents:
Answer: Reputational risk triggering liquidity risk
Reputational risk can rapidly convert into liquidity risk when depositor confidence erodes and withdrawals spike.
The Risk Appetite Statement (RAS) should be MOST closely aligned with:
Answer: The bank's strategic plan and business model
An effective RAS links the amount of risk a bank is willing to accept to achieving its strategic objectives.
Which Basel III capital ratio uses risk-weighted assets in the denominator?
Answer: Common Equity Tier 1 (CET1) ratio
The CET1 ratio is calculated as common equity tier 1 capital divided by total risk-weighted assets.
A Key Risk Indicator (KRI) that consistently breaches its threshold should trigger:
Answer: Escalation to senior management and remediation planning
Threshold breaches signal that risk levels are elevated and require escalation and a documented response plan.