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CMA Final · Risk Management in Banking and Insurance · Liquidity Risk Management

Under the Basel III framework, the Liquidity Coverage Ratio (LCR) is designed to ensure that a bank holds enough high-quality liquid assets (HQLA) to survive a stress period of how many days?

The Liquidity Coverage Ratio uses a 30-day stress horizon. A bank must hold unencumbered high-quality liquid assets at least equal to its projected net cash outflows over thirty calendar days of stress, so it can survive short-term funding shocks without external support.

  1. A7 days
  2. B30 daysCorrect
  3. C90 days
  4. D365 days

Explanation

LCR compares the stock of HQLA with total net cash outflows over a 30-calendar-day stress scenario. The 365-day horizon relates to the Net Stable Funding Ratio, which looks at a one-year funding profile, so it is not the LCR horizon.

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