Why Banks failed the Stress Test by Andrew G.Haldane
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Hi EMMY,
Good point, that reading (Andrew G. Haldane, “Why Banks Failed the Stress Test,” February 2009) was assigned in the 2009 FRM curriculum, not 2011 (nor 2010 in my recollection)
I am sending am email now to GARP to draw their attention to this.
Aside from that the question is not strong, in my opinion; specifically, it happens to be that both are true, but the problem with asserting two bromides ("banks can/should regularly evaluate" and "should [have a ] regular dialogue") is that it's very hard to discern why, concretely, either should ever be false. Importantly, this is not an essay question and true/false questions should have a distinct and concrete basis for their falsehood ... question like these make the reader try to discern what could be the trivial "glitch" vis a vis the assigned source that renders a seeming platitudinous statement false .. which is not productive ... as a question writer, you want to test knowledge, your goal is not to catch the reader in a glitch with respect to trivia or trivial detail in the assignment. A false should be false in a glaringly concrete way, and ideally pragmatic way, that supports a comprehension agenda. It's not what you asked, but i would not mind the question's source, frankly, if it didn't fail the "platitude test").
Thanks, David
Good point, that reading (Andrew G. Haldane, “Why Banks Failed the Stress Test,” February 2009) was assigned in the 2009 FRM curriculum, not 2011 (nor 2010 in my recollection)
I am sending am email now to GARP to draw their attention to this.
Aside from that the question is not strong, in my opinion; specifically, it happens to be that both are true, but the problem with asserting two bromides ("banks can/should regularly evaluate" and "should [have a ] regular dialogue") is that it's very hard to discern why, concretely, either should ever be false. Importantly, this is not an essay question and true/false questions should have a distinct and concrete basis for their falsehood ... question like these make the reader try to discern what could be the trivial "glitch" vis a vis the assigned source that renders a seeming platitudinous statement false .. which is not productive ... as a question writer, you want to test knowledge, your goal is not to catch the reader in a glitch with respect to trivia or trivial detail in the assignment. A false should be false in a glaringly concrete way, and ideally pragmatic way, that supports a comprehension agenda. It's not what you asked, but i would not mind the question's source, frankly, if it didn't fail the "platitude test").
Thanks, David
Hi EMMY,
Thanks, I was referring to the previous Haldane question, I guess it is referenced twice in the sample.
I was looking at P2.Exam1.#20 ... Yours is P2.Exam2.#20
I agree with GARP's answer that neither is true, and note that guessing conservatively (i.e., to bias your error in favor of tougher tests) would get this correct.
Re: I. Banks do not need to consider potential second round effects of stress scenarios on the broader financial network.
I don't need to check the source, this is patently false under any best practice (and even without specific knowledge, notice that you can safely guess false on this)
Re: II. It is inappropriate for banks to conduct “reverse” stress tests.
False, too, per the reading: "As the FSA have proposed, banks should also test to destruction their balance sheets through “reverse” stress tests, in order to identify potential areas of balance sheet weakness."
(but note here, too, that if we are forced to make a guess, we may as well guess in favor of "conservatism" -- if all else fails, might as well assume the guidance is favors more rigorous and encompassing stress testing than less)
I hope that helps, David
Thanks, I was referring to the previous Haldane question, I guess it is referenced twice in the sample.
I was looking at P2.Exam1.#20 ... Yours is P2.Exam2.#20
I agree with GARP's answer that neither is true, and note that guessing conservatively (i.e., to bias your error in favor of tougher tests) would get this correct.
Re: I. Banks do not need to consider potential second round effects of stress scenarios on the broader financial network.
I don't need to check the source, this is patently false under any best practice (and even without specific knowledge, notice that you can safely guess false on this)
Re: II. It is inappropriate for banks to conduct “reverse” stress tests.
False, too, per the reading: "As the FSA have proposed, banks should also test to destruction their balance sheets through “reverse” stress tests, in order to identify potential areas of balance sheet weakness."
(but note here, too, that if we are forced to make a guess, we may as well guess in favor of "conservatism" -- if all else fails, might as well assume the guidance is favors more rigorous and encompassing stress testing than less)
I hope that helps, David
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