medium · Frm Part 2 Liquidity & Treasury Risk
A bank has $5bn of unencumbered Treasury bonds in its HQLA pool. To use these for an intraday 11:00 AM payment, it must first repo them for cash.
If the repo market is experiencing a 'dash-for-cash' stress, what is the most likely outcome?
- The bank will automatically receive an emergency loan from the IMF to cover the shortfall.
- The bank may be unable to find a counterparty to provide cash, or may face significantly higher haircuts, preventing it from meeting its payment obligation on time.
- The LCR will automatically increase to 200% to compensate for the market stress.
- The bank's NSFR will improve because the Treasury bonds are now being used in the repo market.
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