Skip to content

FRM Part II · FRM Exam Part II · Liquidity Stress Testing

A bank has USD 800 million of uninsured corporate operating deposits and USD 500 million of insured retail deposits. Under a stress scenario it assumes 25% runoff on the corporate deposits and 5% on the retail deposits. Over the same horizon it expects USD 120 million of inflows from performing loan repayments, but caps recognized inflows at 50% of gross outflows from these deposits. What is the net deposit-related cash outflow after applying the cap?

The net outflow is USD 112.5 million. Gross outflows are 200 plus 25, or 225 million. The inflow cap is 50% of that, 112.5 million, which is below the 120 million expected, so only 112.5 million is recognized, leaving a net outflow of 112.5 million.

  1. AUSD 225 million
  2. BUSD 112.5 millionCorrect
  3. CUSD 105 million
  4. DUSD 100 million

Explanation

Gross outflows = 800×25% + 500×5% = 200 + 25 = 225. Cap on inflows = 50% × 225 = 112.5, which is below the 120 expected, so only 112.5 is recognized. Net outflow = 225 − 112.5 = 112.5. Using the full 120 would give 105, ignoring the cap.

Did you get it right without looking?

One question tells you little. A timed set on Liquidity Stress Testing shows your real accuracy, how long you take and where you lose marks.

Practise Liquidity Stress TestingFree diagnostic mock

More Liquidity Stress Testing questions