FRM Part II · FRM Exam Part II · Liquidity and Leverage
Which policy tool is most directly aimed at limiting the systemic buildup of leverage over the credit cycle rather than at an individual bank's liquidity shortfall?
A countercyclical capital buffer is the macroprudential tool aimed at systemic leverage. It raises required capital when system-wide credit growth is excessive, restraining leverage during booms and providing a cushion in downturns, unlike the institution-level liquidity or model-monitoring tools listed.
- AA countercyclical capital buffer that rises when system-wide credit growth is excessiveCorrect
- BIntraday liquidity monitoring at a single institution
- CA bank's internal contingency funding plan
- DIncreasing the frequency of internal VaR backtesting
Explanation
A countercyclical buffer is a macroprudential tool that increases required capital in credit booms, restraining leverage build-up and providing a cushion for downturns. The other options are microprudential or institution-specific risk management practices.
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