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

A bank observes that its largest daily intraday liquidity usage occurs because it sends large payments in the morning while incoming payments from counterparties are received mainly in the afternoon. Which action would most directly reduce the peak usage of intraday liquidity from this timing mismatch?

Shifting discretionary outgoing payments later in the day to line up with expected inflows most directly cuts peak usage, because it narrows the timing mismatch itself. Larger credit lines or more HQLA only increase capacity to cover the gap, and changing correspondents does not address timing.

  1. AIncrease the size of its intraday credit line with the central bank
  2. BHold more high-quality liquid assets overnight to cover the gap
  3. CShift discretionary outgoing payments later in the day to align with expected inflowsCorrect
  4. DReduce the number of correspondent banks it uses for settlement

Explanation

The problem is the timing mismatch between outflows and inflows. Rescheduling discretionary payments to match inflows reduces the net cumulative position and peak usage. Larger lines or more HQLA add capacity but do not reduce the usage itself, and fewer correspondents does not address timing.

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