CRA Risk Appetite & Tolerance Frameworks 2

Question 1

A bank's risk appetite statement says it will accept up to $50M in credit losses annually. This year losses reach $48M. What is the most appropriate immediate action?

Accepted Answer

Issue a warning and increase monitoring intensity

Answer

When approaching but not yet breaching a tolerance limit, the appropriate response is to issue an early warning and heighten monitoring to prevent an actual breach.

Question 2

Which of the following BEST describes the relationship between risk capacity and risk appetite?

Accepted Answer

Risk appetite should be set at or below the organization's risk capacity

Answer

Risk appetite is the amount of risk an organization is willing to accept, which should not exceed risk capacity — the maximum risk the entity can absorb before failure.

Question 3

A risk analyst is building a risk appetite framework for a fintech startup. Which element is MOST critical to establish first?

Accepted Answer

Board-approved overarching risk appetite statement

Answer

The board-approved overarching risk appetite statement provides strategic direction that all subsequent quantitative limits and thresholds must flow from.

Question 4

In a risk tolerance framework, a 'hard limit' differs from a 'soft limit' because:

Accepted Answer

Breaching a hard limit triggers immediate mandatory action, whereas soft limits prompt review and escalation

Answer

Hard limits are non-negotiable thresholds whose breach demands immediate action, while soft limits serve as early warning triggers that initiate review processes.

Question 5

An organization's stated risk appetite is 'low' for reputational risk. A proposed marketing campaign carries a moderate reputational risk. What should occur?

Accepted Answer

Conduct additional risk assessment and escalate for senior approval before proceeding

Answer

When a proposed activity exceeds stated risk appetite, additional analysis and escalation to appropriate authority is required before a final decision is made.

(CRA) Certified Risk Analyst Practice Test

(CRA) Certified Risk Analyst Practice Test

CRA Risk Appetite & Tolerance Frameworks 2