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, since the total daily volume of payments processed by the correspondent stays the same and 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, since pre-funding actually helps the treasury desk compute a cleaner and more precise end-of-day LCR figure.
- As a clear violation of the 'Originate-to-Distribute' model, which in fact governs how banks manage securitized loan credit risk exposures at origination.
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