FRM Part II · FRM Exam Part II · Liquidity Risk Management
A bank has the following 30-day stress-period items (in USD millions): Level 1 assets 400, Level 2A assets (after haircut) 150, Level 2B assets (after haircut) 100. Total outflows are 900 and total inflows are 300. Ignoring the 40% cap on Level 2 assets and the 15% cap on Level 2B assets, what is the LCR?
HQLA totals 650 million. Net cash outflows are 900 minus 300 inflows, or 600 million, since inflows are below the 75% cap. The LCR is 650 divided by 600, about 108.3%. Ignoring inflows would wrongly give 72.2%.
- A83.3%
- B108.3%Correct
- C72.2%
- D162.5%
Explanation
HQLA = 400 + 150 + 100 = 650. Net outflows = 900 - 300 = 600 (inflows are not capped here, as 300 is below 75% of outflows, i.e. 675). LCR = 650/600 = 108.3%. Using 900 as the denominator gives 72.2%, which wrongly ignores inflows.
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