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. 016Design a stress scenario for a book that is long Indian corporate bonds and short interest rate futures.Tail risk and stress testingHardcase studyIndian bank risk and treasuryBank market risk

   Say this

   The scenario has to break the hedge, not just move the market. The position is long credit and short duration, so the pain case is spreads widening while the risk-free curve rallies, which is precisely what a flight to quality does.

   Then walk it

   1. Start by naming the real exposures. Net duration is small by design, so a parallel shift is not the risk. The live risks are credit spread, the government-bond-to-swap basis, the futures-to-cash basis, and liquidity in the corporate leg.
   2. So the core shock: AAA and AA corporate spreads widen 150 to 250 basis points, while the ten-year G-sec yield falls 75 basis points. You lose on both legs at once. That is the textbook flight-to-quality asymmetry and it happened in March 2020.
   3. Layer in the basis. The bond futures may not track the cash bond you hold, and the cheapest-to-deliver can switch. Add 25 to 50 basis points of adverse basis independent of the spread move.
   4. Layer in liquidity. Indian corporate bond secondary volumes are thin outside the top names, so add a bid-offer widening of two to four times normal and assume you can only exit 20 percent of the position in a week. Then mark the rest at the stressed exit price, not the matrix price.
   5. Layer in funding. Repo haircuts on corporate paper rise, margin on the futures short goes up as volatility spikes, and both hit the same day. That is the mechanism that turns a mark-to-market loss into a forced sale.
   6. Add a name-specific tail: one issuer in the book is downgraded below investment grade, which triggers forced selling by mandate-constrained funds and moves the whole rating bucket. The IL&FS episode in 2018 is the live Indian precedent, and the credit-fund redemption spiral that followed is the second-round effect.
   7. Then report it properly: P&L by leg, the funding call in rupees, days to unwind, and which limits break. A scenario that produces one aggregate number is not decision-useful.

   Where candidates lose it

   Designing a parallel rate shock. The book is deliberately hedged against that, so the scenario shows nothing and you have proved you didn't look at the position. A good stress scenario attacks the assumption the hedge relies on, which here is spread-to-rate correlation, and it must include liquidity and funding, not just price.

   Expect next

   • How would you calibrate the size of the spread move?
   • What second-round effects would you add?
   • How would you present this to a treasurer who says the book is hedged?
2. 018How would you run an ICAAP, and how does it relate to the supervisory stress tests?Tail risk and stress testingIntermediatetechnicalRegulatory reportingBank credit risk

   Say this

   ICAAP is the bank's own answer to 'how much capital do you actually need', as opposed to the minimum the rules prescribe. You identify all material risks, quantify them including the ones Pillar 1 ignores, stress the plan, and conclude with a capital number and a plan to hold it.

   Then walk it

   1. Start with a risk identification and materiality assessment across everything, not just credit, market and operational. Concentration, interest rate risk in the banking book, pension, reputational, strategic and model risk are the Pillar 2 gaps, and IRRBB and concentration are usually the two biggest.
   2. Quantify each, then stress the three-year business plan under a baseline and at least one severe but plausible adverse scenario. The adverse case has to be internally consistent: if GDP falls, credit costs rise, fee income falls and RWAs inflate through downgrades, all at once.
   3. Project the capital path, not just the end point. The trough quarter is what matters, and it usually sits in year two because provisions lag the macro.
   4. Set the internal capital requirement above the regulatory minimum, with a management buffer sized so that you don't breach the buffer requirement in the adverse case and get dividend restrictions.
   5. Then the management actions, with triggers. Which of those are credible under stress is the question a supervisor will push on hardest, because cutting dividends works and issuing equity in a crisis usually doesn't.
   6. The relationship with supervisory tests: the regulator's exercise, CCAR in the US, the EBA's in Europe, and the RBI's stress-testing guidance in India, uses common prescribed scenarios so banks can be compared. ICAAP is idiosyncratic and covers risks the common scenario ignores. Under the SREP the supervisor uses your ICAAP to set a Pillar 2 requirement on top of Pillar 1.
   7. Governance is half the assessment. An ICAAP the board has clearly never read fails regardless of the modelling quality. The board's sign-off on the risk appetite and the capital plan is the artefact supervisors look for first.

   Where candidates lose it

   Describing ICAAP as a document rather than a process, and forgetting Pillar 2 risks. If you can't name interest rate risk in the banking book and concentration as the two big risks outside Pillar 1, you have not understood why ICAAP exists at all.

   Expect next

   • Which Pillar 2 risk is usually the largest?
   • How would you size a management buffer?
   • What management actions would a supervisor refuse to credit?

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.