Skip to content

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

A bank's CFP defines a heightened-alert stage triggered when its 3-month wholesale funding spread over benchmark widens beyond a set threshold and deposit outflows rise. What is the primary purpose of such triggers?

The purpose of such triggers is to enable timely escalation and activation of contingency actions before a liquidity shortfall becomes acute. Acting early keeps options such as funding raising or asset sales cheaper and feasible. Triggers complement stress testing and have no role in setting capital requirements.

  1. ATo permit the bank to compute its regulatory LCR more frequently
  2. BTo enable timely escalation and activation of contingency actions before a liquidity shortfall becomes acuteCorrect
  3. CTo replace the need for stress testing
  4. DTo fix the bank's minimum capital requirement

Explanation

Early warning indicators and stage triggers allow management to respond before the buffer is depleted, when actions are cheaper and more feasible. They complement rather than replace stress testing, and they are unrelated to capital requirements or LCR calculation frequency.

Did you get it right without looking?

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

Practise Liquidity Risk Reporting and Stress TestingFree diagnostic mock

More Liquidity Risk Reporting and Stress Testing questions