FRM Part II · FRM Exam Part II · Solvency, Liquidity and Other Regulation After the Global Financial Crisis
A bank has Level 1 HQLA of USD 60 billion, and no other HQLA. Under the stress scenario, total cash outflows are USD 120 billion and total cash inflows are USD 70 billion. Inflows are below the 75% of outflows cap. What is the bank's LCR?
The LCR is 120%. Net cash outflows equal USD 120 billion of outflows less USD 70 billion of inflows, or USD 50 billion, since the inflows are under the 75% cap. Dividing USD 60 billion of HQLA by USD 50 billion gives 120%.
- A120%Correct
- B50%
- C86%
- D200%
Explanation
Net cash outflows = 120 - 70 = 50 billion. The inflow cap is 75% x 120 = 90 billion, so inflows of 70 are not capped. LCR = 60/50 = 120%. Dividing by gross outflows gives 50%, which is wrong because inflows must be netted.
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