Risk Management interview preparation

Questions

100

Traced to a firm

37

Firms

12

Updated

September 2026

Asked at

All firmsUBS14MSCI7BLBlackRock5FTFranklin Templeton3Oaktree Capital Management2Scotiabank2Jane Street1Moody's1Neuberger Berman1PIMCO1SSState Street1TSTruist Securities1

Topic

All topicsMarket risk and VaR14Tail risk and stress testing5Greeks and sensitivities5Credit risk11Counterparty risk and CVA6Operational risk5Model risk and validation6Regulatory capital7Liquidity risk and ALM6Statistics and quant foundations7Indian regulation7Risk governance and appetite4Markets and macro9Fit and career8

Level

AnyCoreIntermediateHard

Type

AnyTechnicalCaseBrainteaserMarket viewFit

1. 029What is the difference between a point-in-time and a through-the-cycle rating, and when does it matter?Credit riskIntermediatetechnicalBank credit riskRating agencies

   Say this

   A point-in-time PD reflects the borrower's risk right now, including where we are in the cycle. A through-the-cycle rating strips the cycle out and asks how the borrower would do on average across one. PIT moves a lot, TTC barely moves.

   Then walk it

   1. Agency ratings are broadly through-the-cycle by design. That's why an investment grade issuer doesn't get downgraded every recession, and why agencies talk about rating through a trough.
   2. IFRS 9 needs point-in-time, because expected credit loss is supposed to be a current, forward-looking estimate conditioned on today's macro forecast.
   3. Basel IRB regulatory capital leans through-the-cycle, deliberately, to stop capital requirements swinging with the cycle. If PDs were fully PIT, RWAs would balloon in a recession precisely when banks can't raise capital.
   4. That's the procyclicality argument and it's the real content of this question. A PIT capital regime amplifies the cycle: losses rise, RWAs rise, capital ratios fall twice over, lending contracts, the recession deepens.
   5. The practical consequence is that a bank runs two PD scales and a mapping between them, and the conversion is genuinely hard. You need a macro model to shift a TTC PD to a PIT PD for a given scenario.
   6. The honest caveat: no real rating system is purely one or the other. Agency ratings do migrate in downturns, and IRB models do have cyclical components. It's a spectrum, and the useful question about any model is how much of the cycle it passes through.

   Where candidates lose it

   Defining both and not explaining why anyone cares. The payoff is procyclicality: why regulators want TTC for capital and accountants want PIT for provisions, and why the same borrower carries two different PDs in the same bank on the same day.

   Expect next

   • Which does IFRS 9 need, and why?
   • How would you convert a TTC PD to a PIT PD?
   • Is procyclicality a real problem or a theoretical one?
2. 030Explain IFRS 9 expected credit loss staging.Credit riskIntermediatetechnicalBank credit riskRegulatory reporting

   Say this

   Three stages. Stage 1 is performing, and you provide twelve-month expected loss. Stage 2 is a significant increase in credit risk since origination, and you jump to lifetime expected loss. Stage 3 is credit impaired, lifetime loss with interest recognised on the net carrying amount.

   Then walk it

   1. The whole model is forward-looking and unbiased, probability-weighted across at least a couple of macro scenarios. That's the break from the old incurred-loss model, which waited for evidence of impairment before providing.
   2. The cliff is the interesting bit. Moving from Stage 1 to Stage 2 changes the horizon from twelve months to lifetime, so on a twenty-year mortgage the provision can jump by a multiple overnight without a single missed payment.
   3. The trigger for Stage 2 is a significant increase in credit risk, judged on relative change in lifetime PD since origination, not an absolute level. There's a 30-days-past-due backstop presumption and a low credit risk exemption.
   4. Stage 3 is default, aligned in most banks to the 90-day past due and unlikely-to-pay definitions. Interest revenue then accrues on the carrying amount net of the provision, which is the effective-interest change people forget.
   5. Practical machinery: you need lifetime PD curves, LGD, EAD profiles, discounting at the effective interest rate, and macro scenario weights. Then a management overlay, because in 2020 every model built on pre-pandemic data produced numbers nobody believed.
   6. The criticism to volunteer: the Stage 2 cliff makes provisions lumpy and procyclical, and the scenario weights are a judgement that moves the P&L by a lot. Two banks with identical books can report materially different provisions, which is exactly what IFRS 9 was supposed to reduce.

   Where candidates lose it

   Getting the stages right and missing the twelve-month versus lifetime switch, which is the whole economic content. Also don't call Stage 2 'past due'. It's a relative deterioration in credit risk; 30 days past due is only a backstop.

   Expect next

   • Why is the Stage 2 transition criticised?
   • How do you set macro scenario weights?
   • How does this differ from Basel expected loss?
3. 034Describe what distressed debt is.Credit riskIntermediatetechnicalOaktree Capital ManagementRisk · Los Angeles · 2022

   Say this

   Debt of a company in or near financial distress, trading at a deep discount, usually quoted in cents on the dollar rather than on a yield. The convention is a spread over 1,000 basis points or a price under 70, and the analysis shifts from yield to recovery.

   Then walk it

   1. The mental switch is the key point. For performing credit you underwrite the probability of getting paid the coupon. For distressed you underwrite what the asset is worth in a restructuring and where in the capital structure you sit when it's divided up.
   2. So the work is a valuation exercise plus a legal one. Build an enterprise value under a restructured plan, then walk the waterfall: secured, then unsecured, then sub debt, then equity. The fulcrum security is the one where value runs out, and owning it is how you end up controlling the reorganised equity.
   3. Two strategies, and they're different businesses. Passive: buy mispriced paper and wait. Active or loan-to-own: buy the fulcrum, lead the creditor committee, negotiate the plan, convert to equity.
   4. Risk factors specific to it: process risk, because the outcome depends on a court and on other creditors, not just on the business. Duration risk, because restructurings take years. Illiquidity. And documentation risk, since covenant and intercreditor terms often matter more than the financials.
   5. From a risk-management seat in a distressed fund, the hard problems are valuation of assets with no observable price, position concentration, the fact that VaR is meaningless on paper that doesn't trade, and side-pocket or gate mechanics if investors want out.
   6. The Indian dimension is worth a line: the Insolvency and Bankruptcy Code created a real distressed market after 2016, with ARCs and stressed-asset funds buying from banks. Average haircuts through the IBC have been steep and resolution timelines have run well past the statutory 330 days, which is exactly the process risk you're underwriting.

   Where candidates lose it

   Defining it by price alone and never mentioning the fulcrum security or the capital structure waterfall. Distressed investing is a legal and structural discipline as much as a financial one, and a candidate who can't say what a fulcrum security is has read a definition, not a deal.

   Expect next

   • What is the fulcrum security and why do you want it?
   • How would you value a company in bankruptcy?
   • How would you risk-manage a portfolio of illiquid distressed positions?

   Reported by candidates at Oaktree Capital Management (Risk, Los Angeles, 2022). Source: Wall Street Oasis.

Firm tags come from public, anonymous candidate reports on Wall Street Oasis: strong signal, not sworn testimony. Firms are named as the places a question was reported, not as partners of Fin Maverick. Answers are written for this page to show how to think out loud; they are not scripts to recite.