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

A bank's contractual maturity mismatch report shows, for the overnight to 1-week bucket, contractual inflows of USD 40 million and contractual outflows of USD 190 million. Under the BCBS 144 approach, which interpretation is most appropriate?

The bank faces a USD 150 million net contractual shortfall (40 minus 190) in the shortest bucket. The tool shows how much funding must be rolled over or raised, so supervisors would discuss reliance on market funding. It is not a surplus and does not directly show an LCR breach.

  1. AThe bank has a USD 150 million net funding gap in that bucket, which signals reliance on rollover or new funding and should prompt supervisory discussionCorrect
  2. BThe bank holds USD 150 million surplus liquidity because outflows are larger than inflows
  3. CThe gap is irrelevant because behavioral assumptions are excluded from the tool
  4. DThe result shows the bank breaches the LCR minimum of 100 percent

Explanation

Net gap equals 40 minus 190, which is minus 150 million. The tool uses contractual terms without behavioral assumptions to show how much liquidity the bank would need to raise in each bucket. A negative gap does not by itself prove an LCR breach, and it is not a surplus.

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