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

A bank's treasury team prepares a daily liquidity report for senior management. Which design feature would make the report MOST useful for decision-making on liquidity risk?

The most useful report shows liquidity metrics against approved limits and early warning thresholds, highlights breaches, and names who must escalate or act. This ties the data to risk appetite and decisions, unlike month-end-only snapshots, undifferentiated data dumps, or reports limited to regulatory ratios.

  1. APresenting only end-of-month balances so that daily volatility is smoothed out
  2. BShowing metrics against approved limits and early warning thresholds, with breaches highlighted and escalation owners identifiedCorrect
  3. CIncluding every available metric at the same level of detail regardless of the audience
  4. DReporting only the regulatory ratios, since internal metrics duplicate them

Explanation

Effective liquidity reporting is timely, tied to risk appetite, and actionable. Comparing metrics with limits and triggers, and showing who must act on breaches, supports decisions. Month-end-only data hides intramonth stress, and an undifferentiated data dump or regulatory-only reporting weakens usefulness.

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