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FRM Part II · FRM Exam Part II · Early Warning Indicators

A bank's EWI dashboard is reviewed monthly by the ALCO. During a market disruption, the funding desk notes that several indicators (repo haircuts, CDS spread, deposit outflows) are deteriorating simultaneously, but the monthly cadence means the ALCO sees the data three weeks late. Which action best addresses this limitation while keeping the governance framework sound?

The bank should monitor its most time-sensitive indicators more frequently, with pre-agreed escalation to senior management and the contingency funding plan, while keeping the periodic ALCO review. This fixes the timing gap without discarding useful signals or weakening independent oversight.

  1. ADefine higher-frequency monitoring for the most time-sensitive indicators with pre-agreed escalation paths to senior management and the contingency funding plan, while retaining the periodic ALCO reviewCorrect
  2. BRemove the time-sensitive indicators because they are volatile and hard to report monthly
  3. CWait for the monthly ALCO meeting so decisions are made with complete data
  4. DShift all monitoring to the front office desks and drop independent reporting

Explanation

Indicators tied to fast-moving stress need daily or intraday tracking with automatic escalation and links to the CFP. Removing them loses signal, delaying wastes time, and removing independent reporting weakens governance.

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