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FRM Part II · FRM Exam Part II · Liquidity and Reserves Management: Strategies and Policies

A regional bank's treasurer is drafting the liquidity policy. Which element is most appropriate to include in the policy itself, as opposed to day-to-day procedures?

The policy should contain the board-approved liquidity risk tolerance, limits, and roles and responsibilities. Operational items like call lists, spreadsheet formulas and settlement timetables belong in procedures, because the policy sets the governing framework and procedures implement it.

  1. AThe daily list of counterparties called to roll overnight funding
  2. BBoard-approved liquidity risk tolerance, limits, and defined roles and responsibilities for managing liquidityCorrect
  3. CThe cell-level formulas of the cash-flow forecasting spreadsheet
  4. DThe hourly schedule for settlement of payment-system transactions

Explanation

A liquidity policy sets the high-level framework: risk tolerance, limits, governance and responsibilities approved by the board. Operational details such as counterparty call lists, spreadsheet formulas and settlement schedules belong in procedures, which implement the policy and change more often.

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