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FRM Part II · FRM Exam Part II · Liquidity Risk Reporting and Stress Testing

A bank has an overall LCR of 115 percent but 70 percent of its high-quality liquid assets are in one currency while a large share of its outflows are in another currency that is significant for the bank. Which BCBS 144 tool addresses this concern?

LCR by significant currency is the relevant tool. It reports the liquidity coverage ratio separately for each currency that is a significant share of liabilities (5 percent or more), revealing currency mismatches between liquid assets and outflows that an aggregate LCR of 115 percent may mask.

  1. ALCR by significant currencyCorrect
  2. BContractual maturity mismatch
  3. CMarket-related monitoring tools
  4. DConcentration of funding by counterparty

Explanation

LCR by significant currency lets supervisors see currency mismatches in liquid assets and outflows that the aggregate LCR can hide. A currency is significant when liabilities denominated in it are at least 5 percent of total liabilities. The other tools do not specifically address currency-level coverage.

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