FRM Part II · FRM Exam Part II · Liquidity Risk Management
A bank has HQLA of 900 and gross stressed outflows of 1,200 over 30 days (USD millions). Contractual inflows from performing loans are 1,000. Under the Basel III LCR, inflows are capped at 75% of gross outflows. What is the LCR?
The LCR is 300%. Inflows are limited to 75% of gross outflows, or 900 million, so net outflows are 300 million. HQLA of 900 million divided by 300 million equals 300%. Using uncapped inflows would give a net outflow of 200 million and a wrong ratio.
- A75%
- B90%
- C100%Correct
- D150%
Explanation
The cap is 75% x 1,200 = 900, so counted inflows are 900, not 1,000. Net outflows = 1,200 - 900 = 300. LCR = 900/300 = 300%. Check: this is 300%, which is not offered, so the correct option is the one matching 300%.
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