FRM Part II · FRM Exam Part II · Liquidity Risk Management
A bank's LCR calculation shows outflows of 500 and contractual inflows of 450 (USD millions) over 30 days. The bank holds HQLA of 150. Under the Basel III LCR rules, inflows are capped at 75% of outflows. What is the bank's LCR?
Inflows are capped at 75% of outflows, so 450 becomes 375. Net outflows are 500 minus 375, or 125 million. With HQLA of 150 million, the LCR is 150 divided by 125, which is 120%. Using uncapped inflows would give a misleading 300%.
- A300.0%
- B120.0%
- C40.0%Correct
- D30.0%
Explanation
Inflows are capped at 75% x 500 = 375, so 450 is limited to 375. Net outflows = 500 - 375 = 125. LCR = 150/125 = 120%. Using uncapped inflows gives net outflows of 50 and an LCR of 300%, which overstates the ratio.
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