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Question 1 Your team is invited by the CEO of a large regional bank to a competition called CRO for a day. In this competition, your team is asked to advise the banks CEO and the Board on several burning risk issues. You will need to work as a team to provide your best recommendations. Regular reference to your SUSS studies and focused internet research will be helpful too. (a) Explain the role of a Chief Risk Officer (CRO) in a large bank today and discuss briefly how the job has changed as a result of the COVID19-pandemic. (10 marks) (b) Examine the roles of risk and audit committees in a large bank and how they interact with the CRO. (5 marks) (c) Differentiate risk appetite, risk tolerance, and risk capacity and illustrate their use by providing real-world examples. (10 marks) (d) Interpret the validity of banks stress testing in a VUCA world. (5 marks) The CEO wants your CRO opinion on the attractiveness of a large loan opportunity with a healthcare company benefiting from the current vaccination business. The banks threshold cost of capital is 10%. The loan proposal is for an outstanding amount of $1,500m. Pricing is estimated at 1.20%, net of funding costs. The RWA risk-weight is assumed to be 65% of the exposure amount and the credit expected loss 1%. You may consider operating costs, tax charges, and any other elements to be immaterial. (e) Compute the RAROC of the deal and conclude whether it is accretive. (10 marks)

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