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FRM Part II · FRM Exam Part II · Liquidity Risk Management

A bank has liquid assets of 900 after applying haircuts. In a 30-day stress, it expects run-off of 1,000 retail deposits at 10%, 2,000 unsecured wholesale funding at 50%, and drawdowns on committed lines of 600 at 20%. Contractual inflows of 400 are expected, but the bank caps inflows at 75% of gross outflows. What is the post-stress liquidity surplus or shortfall?

The bank has a surplus of 80. Stressed outflows are 100 + 1,000 + 120 = 1,220, inflows of 400 fall under the 915 cap, so net outflow is 820. Liquid assets of 900 minus 820 leaves a surplus of 80.

  1. ASurplus of 80Correct
  2. BShortfall of 40
  3. CSurplus of 180
  4. DShortfall of 120

Explanation

Outflows = 100 + 1,000 + 120 = 1,220. Inflow cap = 0.75 x 1,220 = 915, so the 400 inflow is fully allowed. Net outflow = 820. Surplus = 900 - 820 = 80. Using gross outflows with no inflows gives a shortfall of 320; the other options misapply the cap or arithmetic.

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