Financial Risk Manager Part 1
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After making losses in two consecutive financial years, the board of a G-SIB bank directs the bank's chief supervisor to submit a report containing position and risk exposure information for all relevant risks. The supervisor proceeds to summarize a report that includes detailed information about specific risks such as credit risk, operational risk, and market risk. However, the report falls short of adequate stress tests and forecasts. Which of the following effective risk data aggregation principle set forth by the Basel Committee on Banking Supervision did the supervisor most likely violate?
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Explanation:
The Basel Committee on Banking Supervision's Principle 8, known as the 'Comprehensiveness' principle, stipulates that risk management reports should cover all material risk areas within an organization. The depth and breadth of these reports should be commensurate with the size, complexity, and risk profile of the bank's operations, as well as the requirements of the recipients. In this scenario, the supervisor's report, despite detailing specific risks, falls short on adequate stress tests and forecasts. This omission violates the comprehensiveness principle as it fails to provide a complete picture of the bank's risk exposure, thereby hindering informed decision-making.
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