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FRM Part II · FRM Exam Part II · Intraday Liquidity Risk Management

A bank's treasurer is reviewing its intraday liquidity framework against the BCBS principles for sound liquidity risk management. Which of the following best describes the core objective of the bank's intraday liquidity risk management?

The objective is to ensure the bank can meet its payment and settlement obligations on time, in both normal and stressed conditions. This supports its own liquidity and the smooth functioning of payment and settlement systems, rather than maximising income or delaying payments.

  1. AEnsure the bank can meet its payment and settlement obligations on a timely basis under both normal and stressed conditionsCorrect
  2. BMinimise the bank's end-of-day central bank reserve balance to maximise interest income
  3. CEliminate all intraday credit extended to the bank's customers
  4. DEnsure the bank settles all payments at the end of the business day to reduce operational workload

Explanation

The intraday liquidity principle requires a bank to actively manage its intraday positions so that it can meet payment and settlement obligations on time in normal and stressed conditions. This contributes to the orderly functioning of payment and settlement systems. The other options describe goals that are not the objective of the framework, and deferring payments to end of day would actually harm other participants.

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