medium · FRM Part 2 Liquidity & Treasury Risk
Which of the following describes the 'Usability Paradox' of the Liquidity Coverage Ratio (LCR)?
- The 75% inflow cap makes it impossible for a bank with matched cash flows to ever achieve an LCR of 100%.
- Increasing HQLA levels improves the LCR but simultaneously worsens the Net Stable Funding Ratio (NSFR).
- Level 1 assets have 0% haircuts but actually lose value faster than Level 2B assets during hyper-inflationary periods.
- Banks hoard HQLA during stress to avoid the stigma of a breach, thereby amplifying systemic liquidity contraction.
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