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

A bank's treasurer reviews intraday stress scenarios. Which design best follows the principle that a bank should be able to deal with unexpected disruptions to its intraday liquidity flows?

Testing multiple scenarios, including own-bank, counterparty and customer stress, and linking results to contingency plans for intraday shortfalls best follows the principle. A single mild scenario, end-of-day only focus, or assuming unlimited central bank credit does not address unexpected intraday disruptions.

  1. AUse only a single scenario of a modest delay in customer receipts
  2. BAssume that stress arises only at the end of day, when the overnight market is closed
  3. CTest scenarios including own-bank stress, counterparty stress and customer stress, and link the results to contingency plans for intraday shortfallsCorrect
  4. DAssume the central bank will provide unlimited intraday credit in all scenarios

Explanation

The principles expect stress scenarios covering own-financial stress, counterparty stress, and customer-bank stress, plus contingency arrangements. A single mild scenario or reliance on unlimited central bank credit is inadequate, and stress can occur at any point intraday.

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