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

A bank's treasury head wants to describe the core purpose of the bank's intraday liquidity risk framework. Which statement best reflects the expectation in the Basel Committee's principles for monitoring and managing intraday liquidity?

The bank should be able to meet its payment and settlement obligations on time, in both normal and stressed conditions. Intraday needs arise from timing mismatches during the day, so end-of-day coverage is insufficient, and central bank credit cannot be assumed to cover everything.

  1. AThe bank should be able to meet its payment and settlement obligations on time under both normal and stressed conditionsCorrect
  2. BThe bank should hold only enough liquidity to cover its end-of-day net position
  3. CThe bank should rely on central bank credit to cover all intraday shortfalls
  4. DThe bank should minimize all intraday payment activity to avoid any need for liquidity

Explanation

The Basel principles expect a bank to manage intraday liquidity so that it can meet payment and settlement obligations on a timely basis in normal and stressed conditions, which supports orderly settlement and wider stability. End-of-day coverage alone ignores timing mismatches within the day. Relying wholly on central bank credit is not a sound strategy.

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