medium · FRM Part 2 Liquidity & Treasury Risk
A bank is evaluating its intraday liquidity for USD settlement. It notes that its USD LCR is 65%, while its aggregate LCR is 120%.
Which of the following best describes the 'supervisory gap'?
- The bank's USD LCR is only permitted to run low if its overall NSFR ratio simultaneously stays well above 150 percent at all times throughout the day.
- The USD LCR figure must always be numerically equal to the bank's overall aggregate LCR ratio for the bank to remain fully compliant with all Basel III liquidity rules.
- The aggregate ratio hides a significant currency-specific shortfall that may prevent the bank from meeting USD payment deadlines if the FX swap market freezes.
- The bank should simply convert the bulk of its USD-denominated asset holdings into EUR-denominated assets in order to raise its overall aggregate LCR ratio figure quickly.
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