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

A bank under a supervisory liquidity stress test holds $40 billion of high-quality liquid assets (HQLA). Stressed 30-day cash outflows are $55 billion and stressed 30-day cash inflows are $20 billion. Assuming inflows are capped at 75% of outflows, what is the resulting liquidity coverage ratio?

The liquidity coverage ratio is about 114.3%. Inflows of $20 billion are below the 75% cap of $41.25 billion, so net outflows are $55 billion minus $20 billion, or $35 billion. Dividing $40 billion of HQLA by $35 billion gives 114.3%.

  1. A72.7%
  2. B114.3%Correct
  3. C200.0%
  4. D100.0%

Explanation

Inflow cap = 75% x 55 = 41.25, and actual inflows of 20 are below the cap so 20 is used. Net outflows = 55 - 20 = 35. LCR = 40/35 = 114.3%. 72.7% ignores inflows (40/55), and 200% divides HQLA by inflows.

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