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FRM Part II · FRM Exam Part II · Liquidity Stress Testing

Which statement best distinguishes the NSFR from the LCR?

The NSFR targets structural funding stability by comparing available stable funding with required stable funding over a one-year horizon, while the LCR tests short-term resilience through a 30-day stress of net cash outflows. They are complementary, not interchangeable, regulatory liquidity standards.

  1. AThe NSFR is a short-term 30-day measure, while the LCR covers one year
  2. BThe NSFR addresses structural funding mismatches over a one-year horizon, while the LCR addresses short-term resilience to a 30-day stressCorrect
  3. CThe NSFR counts only central bank reserves as stable funding
  4. DThe NSFR is calculated using net cash outflows under a stress scenario, as is the LCR

Explanation

The NSFR compares available and required stable funding over a one-year horizon to limit reliance on short-term wholesale funding. The LCR is the 30-day stress measure. The other options reverse horizons or misdescribe the inputs.

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