medium · FRM Part 2 Liquidity & Treasury Risk
A Treasury manager calculates the Liquidity Coverage Ratio (LCR) for a bank. The bank has 40 billion in Level 1 HQLA and 30 billion in Level 2A HQLA (after a 15% haircut).
What is the total 'recognized' HQLA for the LCR, given the 40% composition cap on Level 2 assets?
- $40 billion, as Level 2 assets are completely derecognized in a combined stress scenario.
- $70 billion, as both amounts are within their respective quality definitions.
- $66.67 billion, because the Level 2A assets are capped at two-thirds of the Level 1 assets.
- $55 billion, after applying an additional 50% haircut to the Level 2A assets.
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