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

A bank's treasury team is classifying intraday liquidity flows under the Basel framework. Which of the following is best classified as a source of intraday liquidity rather than a use?

Balances held at the central bank are a source of intraday liquidity, because they are funds available to settle payments. Payments made for customers, securities settlement obligations and intraday drawings on credit lines all consume liquidity, so they are uses rather than sources.

  1. APayments the bank makes on behalf of its correspondent banking customers
  2. BBalances held at the central bankCorrect
  3. CSecurities settlement obligations of the bank's own proprietary trades
  4. DCredit lines extended to customers that are drawn intraday

Explanation

Central bank balances, including reserves, are the primary source of available intraday liquidity. The other options represent outflows or draws on liquidity, so they are uses. Payments made for customers and settlement obligations consume liquidity when they are paid.

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