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Retry questionBank Stress Testing
Case Interview Practice >
Brainstorming
Your team has confirmed that Eastern Capital Bank’s stress testing model underestimates macroeconomic stress compared to regulatory benchmarks. Besides fixing the model inputs, the CFO is interested in hearing what types of internal process improvements could strengthen the bank’s capital planning process.
What are some practical ways the bank could improve its capital planning process to better prepare for CCAR reviews?
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Sample answer from an expert consultant
To improve Eastern Capital Bank’s capital planning process beyond model inputs:
I. Governance & Policy Enhancements
- Establish a formal capital policy aligned with CCAR guidelines.
- Increase Board and C-suite oversight of capital planning decisions.
II. Process & Systems Improvements
- Implement automated workflows for data collection and validation.
- Increase frequency of internal stress testing (quarterly instead of annually).
III. Model Validation & Documentation
- Set up an independent model risk management team.
- Maintain clear documentation and audit trails for all modeling assumptions.
IV. Talent & Training
- Upskill internal risk management staff on regulatory expectations.
- Hire experienced regulatory compliance specialists.
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