medium · Frm Part 2 Operational Risk
A bank's Risk Appetite Framework (RAF) defines 'Risk Capacity' as 10 billion.
Where should the 'Risk Appetite' be set relative to this capacity?
- Above 10 billion, as long as the firm has insurance coverage.
- Visibly below 10 billion to provide a safety buffer for unexpected volatility.
- Exactly at 10 billion to maximize shareholder return.
- Appetite and Capacity are synonyms and should be the same number.
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