medium · Frm Part 2 Liquidity & Treasury Risk
A bank has an LCR of 105%. In its 'Early Warning Indicators' (EWI) dashboard, it notices that its correspondent bank has recently started requesting 'pre-funding' for all morning payments.
How should this be interpreted?
- As a neutral event, because the total daily volume of payments remains the same and thus the LCR is unchanged.
- As a critical idiosyncratic warning signal that the correspondent bank is de-risking and no longer trusts the bank's intraday creditworthiness.
- As a positive development, as it helps the bank more accurately calculate its end-of-day LCR.
- As a violation of the 'Originate-to-Distribute' model of credit risk management.
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