FRM Part II · FRM Exam Part II · Liquidity Risk
A bank's treasurer reviews the Liquidity Coverage Ratio (LCR). Which statement correctly describes what the LCR requires under Basel III?
The LCR requires a bank to hold unencumbered high-quality liquid assets at least equal to its total net cash outflows over a 30-calendar-day stress period, giving a ratio of at least 100%. The one-year stable funding test is the NSFR.
- AStock of unencumbered high-quality liquid assets at least equal to total net cash outflows over a 30-calendar-day stress periodCorrect
- BAvailable stable funding at least equal to required stable funding over a one-year horizon
- CTier 1 capital of at least 3% of total exposure measure
- DTotal deposits at least equal to total loans at all times
Explanation
The LCR is HQLA divided by total net cash outflows over 30 days under a stress scenario, with a minimum of 100%. The one-year available/required stable funding comparison describes the NSFR, not the LCR. The 3% Tier 1 test is the leverage ratio.
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