FRM Part II · FRM Exam Part II · Liquidity Risk
Under the Basel III LCR framework, which treatment of a retail deposit is most appropriate?
Stable retail deposits, especially those covered by effective deposit insurance, carry lower LCR run-off rates than less stable retail deposits, which have higher minimum rates of at least 10%. Basel differentiates because behavior under stress differs, so retail funding is neither fully excluded nor fully run off.
- AStable retail deposits covered by effective deposit insurance receive a lower run-off rate (minimum 3%) than less stable retail deposits (minimum 10%)Correct
- BAll retail deposits run off at 100% in the 30-day stress scenario
- CRetail deposits are excluded from outflows because they are insured
- DRetail deposits run off at the same rate as unsecured wholesale funding from financial institutions
Explanation
Basel III assigns stable retail deposits a minimum run-off of 5% (3% in some insured regimes) and less stable deposits at least 10%, reflecting lower run-off behavior. The distractors ignore this differentiation; financial-institution wholesale funding runs off much more heavily (100% for some).
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