AIMs: Differentiate between Level 1, Level 2A, and Level 2B assets, and define the respective cap for each asset class as a percentage of total HQLA. Define how total net cash outflows are calculated for the minimum liquidity coverage ratio. Describe additional metrics to be used by supervisors as monitoring tools when assessing the liquidity risk of a bank.
Questions:
407.1. Canzone International Bank carries $3.0 billion in Level 1 assets plus $2.0 billion in Level 2A assets. With respect to expected cash outflows over the next 30 days, the bank carries "less stable" deposits (liabilities) of $80.0 billion with an average run-off rate (factor) of 10%; expected cash inflows are $10.0 million. Please note per Basel III:
a. 87.5%
b. 136.5%
c. 235.0%
d. 360.0%
407.2. Which asset class is mostly likely to receive a run-off factor of 5.0%?
a. Stable deposits
b. Less stable deposits
c. Operational deposits generated by clearing, custody and cash management activities
d. Unsecured wholesale funding provided by other legal entity customers
407.3. Each of the following is a viable liquidity monitoring metric that can supplement the liquidity coverage ratio (LCR) EXCEPT for which is the least likely to supplement the LCR?
a. Funding liabilities sourced from each significant counterparty as a percentage (%) of total liabilities
b. Available unencumbered assets that are marketable as collateral in secondary markets
c. Contractual cash and security inflows and outflows from all on- and off-balance sheet items, mapped to defined time bands based on their respective maturities.
d. Change in the periodic provision for loan losses as a percentage (%) of net interest income
Answers here:
Questions:
407.1. Canzone International Bank carries $3.0 billion in Level 1 assets plus $2.0 billion in Level 2A assets. With respect to expected cash outflows over the next 30 days, the bank carries "less stable" deposits (liabilities) of $80.0 billion with an average run-off rate (factor) of 10%; expected cash inflows are $10.0 million. Please note per Basel III:
- Level 1 assets can comprise an unlimited share of the pool and are not subject to a haircut under the LCR
- A 15% haircut is applied to the current market value of each Level 2A asset held in the stock of HQLA
- Level 2 assets (comprising Level 2A assets and any Level 2B assets permitted by the supervisor) can be included in the stock of HQLA, subject to the requirement that they comprise no more than 40% of the overall stock after haircuts have been applied
- Definition: Total net cash outflows over the next 30 calendar days = Total expected cash outflow - Min{total expected cash inflows; 75% of total expected cash outflows}
a. 87.5%
b. 136.5%
c. 235.0%
d. 360.0%
407.2. Which asset class is mostly likely to receive a run-off factor of 5.0%?
a. Stable deposits
b. Less stable deposits
c. Operational deposits generated by clearing, custody and cash management activities
d. Unsecured wholesale funding provided by other legal entity customers
407.3. Each of the following is a viable liquidity monitoring metric that can supplement the liquidity coverage ratio (LCR) EXCEPT for which is the least likely to supplement the LCR?
a. Funding liabilities sourced from each significant counterparty as a percentage (%) of total liabilities
b. Available unencumbered assets that are marketable as collateral in secondary markets
c. Contractual cash and security inflows and outflows from all on- and off-balance sheet items, mapped to defined time bands based on their respective maturities.
d. Change in the periodic provision for loan losses as a percentage (%) of net interest income
Answers here:
