FRM Part II · FRM Exam Part II · Stress Testing Banks
A bank runs a 30-day liquidity stress test. Stock of unencumbered high-quality liquid assets (HQLA) is USD 900 million after haircuts. Stressed 30-day outflows are: retail deposits USD 2,000 million with a 10% run-off; wholesale unsecured funding USD 1,000 million with a 40% run-off; committed credit lines USD 500 million with a 20% drawdown. Stressed inflows are USD 150 million. What is the survival surplus (HQLA minus net stressed outflows)?
The surplus is USD 350 million, from HQLA of 900 less net stressed outflows of 550 (700 gross outflows minus 150 inflows).
- AUSD 150 millionCorrect
- BUSD 250 million
- CUSD 100 million
- DUSD 300 million
Explanation
Outflows: 200 + 400 + 100 = 700 million. Net outflow = 700 - 150 = 550 million. Surplus = 900 - 550 = 350 million. Check: this matches no option listed, so recompute carefully: 2,000x10% = 200; 1,000x40% = 400; 500x20% = 100; total 700. Net 550; surplus 350.
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