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

A bank's stress test shows a 90-day survival horizon under its idiosyncratic scenario, with the board's required minimum at 60 days. Management then adds a second-round effect: a rating downgrade triggers 120 million of additional collateral calls, and the daily net stressed outflow is 4 million against remaining counterbalancing capacity of 360 million before the calls. Ignoring other changes, what is the revised survival horizon?

The revised survival horizon is 60 days. Capacity of 360 million falls to 240 million after the 120 million downgrade-triggered collateral calls, and at 4 million of daily net outflow that lasts 60 days, which just meets the board minimum rather than the 90 days originally shown.

  1. A90 days
  2. B60 daysCorrect
  3. C80 days
  4. D30 days

Explanation

Before calls, 360 / 4 = 90 days. The 120 million calls reduce capacity to 240 million. Then 240 / 4 = 60 days. This equals the board minimum, so the buffer is exhausted, and ignoring the trigger would overstate resilience by 30 days.

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