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FRM Part II · FRM Exam Part II · Solvency, Liquidity and Other Regulation After the Global Financial Crisis

A bank has Level 1 assets of USD 60 million, Level 2A assets (after haircut) of USD 20 million, and Level 2B assets (after haircut) of USD 10 million. Under the Basel III LCR, Level 2 assets in total may be at most 40% of the HQLA stock, and Level 2B at most 15% of the stock. Ignoring any other adjustments, what is the eligible HQLA stock?

The eligible HQLA stock is USD 90 million. Level 2 assets total 30 million, below the 40 million cap implied by the 40% limit, and Level 2B of 10 million is below its 15% cap of about 14.1 million, so no cap binds and all assets count.

  1. AUSD 90.0 millionCorrect
  2. BUSD 85.0 million
  3. CUSD 80.0 million
  4. DUSD 87.5 million

Explanation

Cap formula: Level 2 total cannot exceed 2/3 of Level 1, i.e. 40 million against 60; Level 2 here is 30 million, within the cap. Level 2B cap is 15/85 of (Level 1 + Level 2A) = 0.1765 x 80 = 14.1 million; the 10 million is within it. No cap binds, so HQLA = 60+20+10 = 90 million. Option 85 wrongly drops part of Level 2B, and 80 omits Level 2B entirely.

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