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FRM Part II · FRM Exam Part II · The US Dollar Shortage in Global Banking and the International Policy Response

A bank has the following US dollar positions: HQLA of USD 12 billion, and stressed 30-day outflows of USD 20 billion against inflows of USD 6 billion (inflows are below the 75% cap on outflows). Total balance sheet liquidity is otherwise ample in euros. What is the bank's USD LCR, and what does it imply?

The USD LCR is 12 divided by net outflows of 14, about 86%, a dollar shortfall. Ample euro liquidity does not cure it because currency convertibility and swap markets may fail in stress, which is why currency-level LCR monitoring matters.

  1. A60%, a shortfall in dollars even though euro liquidity is ample, as it may not be freely convertible in stressCorrect
  2. B86%, a shortfall that is offset by euro liquidity
  3. C200%, a surplus
  4. D120%, a modest surplus

Explanation

Net outflows = 20 - 6 = 14 billion. LCR = 12/14 = 85.7%, so about 86%. Check the cap: inflows 6 are below 75% of 20 = 15. The 86% figure is the right number, not 60%; 60% comes from 12/20, ignoring inflows. Euro liquidity cannot be assumed convertible in stress, so the dollar shortfall is real.

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