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

A bank's treasury head wants the daily liquidity report sent to the Asset-Liability Committee to be most useful for decision-making. Which feature of the report best supports this aim?

The best feature is showing limit utilisation and trends against internal thresholds with clear escalation triggers. This lets the committee act promptly on emerging pressure. Consolidated-only, regulatory-only or quarterly reporting is too aggregated or too slow to support timely liquidity decisions.

  1. APresenting metrics only at consolidated group level to avoid clutter
  2. BIncluding limit utilisation and trend against internal thresholds, with escalation triggers for breachesCorrect
  3. CReporting only regulatory ratios, since internal metrics are not comparable across banks
  4. DUpdating the report quarterly so that figures are audited before circulation

Explanation

Effective liquidity reporting is timely and links metrics to limits and escalation triggers, so management can act. Consolidated-only reporting hides entity and currency pockets, and quarterly reporting is too slow for liquidity risk, which can change within days.

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