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FRM Part II · FRM Exam Part II · Liquidity Risk Reporting and Stress Testing

A bank runs a 30-day stress scenario. Stressed cash outflows are: retail deposits of 2,000 million with a 10% run-off, wholesale unsecured funding of 1,500 million with a 40% run-off, and committed credit lines of 800 million with a 25% drawdown. Stressed inflows are 300 million. Unencumbered liquid assets after haircuts total 1,100 million. What is the stressed net liquidity surplus or shortfall?

The bank has a surplus of 400 million. Stressed outflows total 1,000 million (200 retail, 600 wholesale, 200 credit lines), less 300 million of inflows gives 700 million net outflow. Subtracting this from 1,100 million of haircut liquid assets leaves a 400 million surplus.

  1. ASurplus of 100 millionCorrect
  2. BShortfall of 100 million
  3. CSurplus of 400 million
  4. DShortfall of 400 million

Explanation

Outflows: 2,000×10%=200; 1,500×40%=600; 800×25%=200; total 1,000. Net outflow = 1,000-300 = 700. Surplus = 1,100-700 = 400 million. Correct answer is therefore a surplus of 400 million; the 100 million surplus results from deducting inflows incorrectly.

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