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

A bank's treasury team reports that under its combined market-and-idiosyncratic stress scenario, the bank can meet all contractual and behavioural outflows using its liquidity buffer and contingency actions for 47 days before cash runs out. What is this measure commonly called in liquidity stress testing?

The measure is the survival horizon: the length of time, here 47 days, that a bank can meet stressed outflows from its liquidity buffer and available actions. Regulatory ratios like the LCR and NSFR are fixed-horizon ratios, not durations, and the loan-to-deposit ratio is a static funding indicator.

  1. ASurvival horizonCorrect
  2. BNet stable funding ratio
  3. CLoan-to-deposit ratio
  4. DLiquidity coverage ratio

Explanation

The survival horizon is the number of days a bank can withstand a defined stress scenario before its liquidity resources are exhausted. The LCR and NSFR are ratios against fixed regulatory scenarios or horizons, and the loan-to-deposit ratio is a static funding metric, so none gives a duration in days.

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