CRO Liquidity Risk Management 3

Question 1

Under Basel III liquidity requirements, what is the minimum acceptable Liquidity Coverage Ratio (LCR) for large internationally active banks?

Accepted Answer

100%

Answer

80%

Answer

90%

Answer

110%

Question 2

A Chief Risk Officer should establish liquidity risk limits based primarily on:

Accepted Answer

The institution's risk appetite and applicable regulatory requirements

Answer

The institution's historical worst-case funding costs over the last decade

Answer

Competitor institutions' publicly disclosed liquidity ratios

Answer

The current market interest rate environment

Question 3

What is 'secured funding' in liquidity risk management?

Accepted Answer

Borrowing collateralized by assets pledged to the lender

Answer

Funding backed by government guarantees or deposit insurance

Answer

Deposits insured by the FDIC up to applicable limits

Answer

Funding sourced from insurance subsidiary reserves

Question 4

Which of the following actions would MOST effectively reduce an institution's liquidity risk?

Accepted Answer

Extending the maturity profile of liabilities and diversifying funding sources

Answer

Increasing the concentration of wholesale short-term funding sources

Answer

Growing the loan portfolio aggressively to improve net interest income

Answer

Reducing the HQLA buffer to deploy capital into higher-yielding assets

Question 5

What does 'encumbered assets' mean in the context of liquidity risk?

Accepted Answer

Assets pledged as collateral and therefore unavailable for immediate liquidity use

Answer

Assets with high market liquidity but low credit quality ratings

Answer

Assets that have been written off but remain on the balance sheet

Answer

Assets denominated in foreign currencies subject to FX volatility

Question 6

In a liquidity crisis, which funding source should a bank typically access LAST?

Accepted Answer

Federal Reserve Discount Window

Answer

Federal Home Loan Bank (FHLB) advances

Answer

Asset sales from the HQLA portfolio

Answer

Secured interbank borrowing from correspondent banks

Question 7

Which governance structure is MOST appropriate for an institution's liquidity risk management?

Accepted Answer

The board sets risk appetite, ALCO oversees strategy, and the CRO provides independent oversight

Answer

The CFO alone is responsible for all liquidity decisions without board involvement

Answer

The treasury department manages liquidity independently of risk management functions

Answer

External auditors assume primary responsibility for ongoing liquidity risk monitoring