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FRM Part II · FRM Exam Part II · Monitoring Liquidity

A treasurer converts a contractual gap into a behavioral gap. Retail demand deposits of USD 800 million are contractually repayable on demand, but the bank's analysis shows 60% is stable core balance that can be treated as a 12-month outflow, while the remainder is treated as an overnight outflow. How should these deposits appear in the behavioral gap?

Place 320 million as an overnight outflow and 480 million in the 12-month bucket. The 60% stable core of 800 million is 480 million and is assumed to leave slowly, while the volatile 40%, or 320 million, is treated as immediately withdrawable.

  1. AOutflow of 800 million overnight
  2. BOutflow of 320 million overnight and 480 million in the 12-month bucketCorrect
  3. COutflow of 480 million overnight and 320 million in the 12-month bucket
  4. DOutflow of 800 million in the 12-month bucket

Explanation

Stable core is 60% x 800 = 480, placed in the 12-month bucket. The volatile remainder is 40% x 800 = 320, placed overnight. Option C swaps the two portions, and A and D ignore the behavioral split entirely.

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