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

A bank has USD 400 million of unsecured wholesale funding maturing within 30 days and USD 600 million of stable retail deposits. Under its stress assumptions, 50% of the wholesale funding is not rolled over and 5% of retail deposits run off. It holds USD 150 million of unencumbered liquid assets after a 10% haircut already applied, and can raise no new funding. What is the 30-day liquidity surplus or shortfall?

The shortfall is USD 80 million. Stressed outflows are USD 200 million of wholesale plus USD 30 million of retail, totalling USD 230 million, against USD 150 million of liquid assets already net of haircut.

  1. AShortfall of USD 80 millionCorrect
  2. BShortfall of USD 50 million
  3. CSurplus of USD 70 million
  4. DShortfall of USD 230 million

Explanation

Outflows = 0.5×400 + 0.05×600 = 200 + 30 = 230. Liquid assets after haircut = 150. Net = 150 − 230 = −80, a shortfall. Applying the haircut again would give a different, wrong figure; ignoring retail runoff gives −50.

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