medium · FRM Part 2 Liquidity & Treasury Risk
An institutional stress scenario involves a 'major counterparty payment delay.'
Why is this scenario often more binding than a general market-wide liquidity shock for a clearing bank's intraday operations?
- It specifically targets the timing of inflows required to meet time-critical obligations.
- It specifically targets the timing of morning liquidity inflows that are required.
- It results in the permanent loss of principal from an outright counterparty default event.
- It reduces the bank's end-of-day HQLA stock and reported buffer, causing an immediate LCR breach.
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