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FRM Part II · FRM Exam Part II · The US Dollar Shortage in Global Banking and the International Policy Response

A European bank holds long-term US dollar assets funded mainly by short-term wholesale dollar borrowing and FX swaps. Which post-crisis regulatory measure most directly addresses the risk that this dollar funding could not be rolled over during a 30-day stress?

The Liquidity Coverage Ratio is the best answer. It requires high-quality liquid assets to cover 30-day stressed net outflows, and currency-level monitoring captures dollar mismatches. Capital buffers and the leverage ratio address solvency and balance sheet size rather than the short-term rollover risk on dollar funding.

  1. AThe Liquidity Coverage Ratio, including currency-level monitoring of significant currenciesCorrect
  2. BThe Basel III leverage ratio
  3. CThe countercyclical capital buffer
  4. DThe capital conservation buffer

Explanation

The LCR requires enough high-quality liquid assets to cover net outflows over 30 days, and Basel guidance calls for monitoring LCR in significant currencies such as the US dollar. Capital measures and the leverage ratio address solvency and balance sheet size, not short-term funding runs.

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