Liquidity, Funding and Balance-Sheet Risk

Introduction and Context

Liquidity is the capacity of an investment bank to meet payment and settlement obligations when they fall due without unacceptable losses. A bank may be solvent—its assets may exceed its liabilities—yet fail because assets cannot be converted into cash quickly enough. The global financial crisis demonstrated that liquidity risk can emerge rapidly through wholesale funding withdrawals, collateral calls, loss of market confidence, and disruption of secured-financing markets.

Investment banks face a distinctive liquidity profile. Their balance sheets often contain large inventories of securities and derivatives, substantial short-term wholesale funding, centrally cleared transactions, securities-financing trades, and intraday payment obligations. Liquidity risk therefore extends beyond traditional deposit withdrawals. It includes the ability to fund assets, satisfy margin requirements, settle trades, replace maturing liabilities, and maintain market access during stress.

This chapter develops an integrated framework for managing market liquidity, funding liquidity, collateral and margin risk, maturity mismatches, concentration, intraday liquidity, and balance-sheet constraints. It also explains liquidity gaps, survival horizons, contingency funding plans, the Liquidity Coverage Ratio (LCR), the Net Stable Funding Ratio (NSFR), and funds-transfer pricing (FTP).

Learning Objectives

By the end of this chapter, the reader should be able to:

1. Distinguish market liquidity risk from funding liquidity risk.
2. Construct and interpret contractual and behavioral liquidity gaps.
3. Estimate survival horizons under normal and stressed conditions.
4. Assess collateral, margin-call, concentration, and intraday liquidity risks.
5. Explain the purpose and structure of the LCR and NSFR.
6. Design the principal components of a contingency funding plan.
7. Apply funds-transfer pricing to business-line liquidity decisions.
8. Evaluate governance, regulatory, technological, and ethical issues in liquidity risk management.

1. The Nature of Liquidity and Balance-Sheet Risk

1.1 Market and funding liquidity

Market liquidity risk is the risk that an institution cannot sell or hedge an asset promptly at, or close to, its observed market price. It is affected by trading volume, bid–ask spreads, market depth, price volatility, market concentration, and the transparency and standardization of the instrument.

Funding liquidity risk is the risk that an institution cannot obtain cash or collateral to meet obligations when due. It may arise because funding providers refuse to roll over liabilities, secured lenders increase haircuts, counterparties demand additional margin, or the institution loses access to payment and settlement services.

The two forms reinforce each other. Forced asset sales caused by funding stress can depress market prices, producing losses and further collateral calls. Conversely, a decline in asset market liquidity may reduce the value of collateral and make funding more expensive.

1.2 Solvency, liquidity, and balance-sheet risk

Solvency concerns the long-term relationship between asset value and liability claims. Liquidity concerns timing and convertibility. Balance-sheet risk is broader: it includes the effects of leverage, maturity transformation, interest-rate exposure, currency mismatches, off-balance-sheet commitments, and the availability of capital and funding.

A simplified balance-sheet identity is:

This identity must hold at every reporting date, but it does not guarantee liquidity. An asset may have substantial accounting value while being difficult to monetize during stress. Fair-value measurement, valuation uncertainty, and model risk can therefore influence liquidity indirectly through collateral eligibility, margining, and market confidence.

1.3 Liquidity as an interconnected system

Liquidity management must consider several linked layers:

• Cash liquidity: immediately available balances and cash equivalents.
• Market liquidity: the ability to sell or hedge positions.
• Funding liquidity: access to unsecured and secured borrowing.
• Collateral liquidity: the availability and mobilization of eligible collateral.
• Settlement liquidity: the ability to meet payment and delivery obligations.
• Structural liquidity: the stability of funding over the balance-sheet horizon.

A bank can appear liquid on one layer and vulnerable on another. For example, it may hold high-quality securities but lack the operational capacity to transfer them to a central counterparty or lender before a payment deadline.

2. Sources of Liquidity Risk in Investment Banking

2.1 Maturity transformation

Investment banks often finance longer-lived assets with shorter-term liabilities. The resulting maturity mismatch creates rollover risk. If short-term funding matures before assets generate cash or can be sold, the bank must refinance or liquidate assets.

Contractual maturity schedules are necessary but insufficient. Many liabilities do not mature on their legal date: secured funding may be withdrawn through reduced capacity, derivatives may generate margin calls, and clients may withdraw prime-brokerage balances. Behavioral assumptions are therefore essential.

2.2 Wholesale funding dependence

Wholesale funding includes repurchase agreements, securities lending, commercial paper, certificates of deposit, unsecured interbank borrowing, and institutional deposits. It can be cheaper and more flexible than retail funding, but it is generally more confidence-sensitive. Funding providers may shorten maturities, demand higher spreads, or refuse renewal when the bank’s credit quality or market conditions deteriorate.

2.3 Collateral and margin calls

A secured lender protects itself through a haircut. If the market value of securities pledged is V, and the haircut is h, the borrowing capacity is:

Here, V and borrowing capacity are measured in currency units, while h is a decimal between 0 and 1. The relationship assumes a single collateral asset, a constant haircut, and no eligibility or concentration adjustment.

For example, securities worth $100 million with a 5% haircut support $95 million of borrowing. If the haircut rises to 15%, borrowing capacity falls to $85 million. The resulting $10 million funding gap may require additional collateral or cash.

Derivatives generate both variation margin, reflecting current mark-to-market exposure, and initial margin, intended to cover potential future exposure during the close-out period. A stress event can therefore produce simultaneous cash outflows from falling asset prices, increased volatility, wider spreads, and rating-related collateral triggers.

2.4 Concentration risk

Liquidity concentration occurs when funding or collateral depends excessively on one provider, market, currency, maturity bucket, client segment, or asset class. Concentration limits should address:

• the largest funders and aggregate related funders;
• dependence on one repo market or clearing broker;
• collateral issued by one sovereign or sector;
• currency and jurisdictional concentrations;
• maturity concentrations around particular dates; and
• common reliance on a small number of market-makers.

Diversification is valuable only if sources remain independent under stress. Ten funding providers using the same market channel may represent less diversification than their number suggests.

2.5 Intraday liquidity

Intraday liquidity is the ability to meet obligations throughout the business day. Requirements may arise from securities settlement, central-counterparty margin, correspondent-bank payments, client withdrawals, foreign-exchange settlement, and collateral substitutions. A bank can meet end-of-day ratios while failing intraday because incoming payments arrive after outgoing obligations.

Intraday monitoring should identify peak cumulative net cash outflow, payment time, value date, currency, legal entity, and critical counterparties. It should also distinguish irrevocable payments from payments that can be delayed or prioritized.

3. Measuring Liquidity Risk

3.1 Liquidity gap analysis

A liquidity gap compares expected cash inflows and outflows over time. For time bucket t, the net gap is:

where I_t is expected cash inflow and O_t is expected cash outflow during bucket t. The cumulative gap through bucket T is:

All terms must be expressed in the same currency and time convention. A negative cumulative gap indicates that cash resources, asset sales, or new funding are needed unless behavioral assumptions change.

A simple illustrative schedule is shown below.

The schedule indicates an immediate $40 million need and a $60 million cumulative need by day 30. It does not by itself prove that the bank will fail: the bank may hold liquid assets, have committed facilities, or receive additional inflows. It is a diagnostic tool, not a complete liquidity metric.

Gap analysis should be performed under contractual, expected, and stressed assumptions. Contractual analysis uses legal maturities. Expected analysis incorporates historical behavior and management actions. Stress analysis applies conservative assumptions to withdrawals, collateral, asset-sale discounts, and rollover rates.

3.2 Survival horizon

The survival horizon is the period for which a bank can continue meeting obligations under a specified stress scenario using available liquidity resources and permitted management actions. A simplified daily cash balance is:

where B_t is cash available at the end of day t, M_t represents eligible management actions such as asset sales or secured borrowing, and B₀ is opening usable liquidity. The survival horizon is the last period for which B_t remains non-negative, subject to operational and regulatory constraints.

The metric is scenario-dependent. A 30-day horizon under moderate stress is not comparable with a seven-day horizon under a severe market closure unless assumptions are clearly disclosed. Management should specify which assets are monetizable, applicable haircuts, execution time, legal-entity restrictions, and whether central-bank facilities are available.

3.3 Liquidity stress testing

Stress tests should combine institution-specific and market-wide shocks. Examples include:

• loss of unsecured funding access;
• partial withdrawal of operational and non-operational deposits;
• increased repo haircuts;
• decline in collateral value;
• rating downgrade and contractual margin triggers;
• widening bid–ask spreads and lower market depth;
• default of a major counterparty;
• disruption of a clearing or settlement system;
• foreign-exchange convertibility restrictions; and
• simultaneous stress across several legal entities.

Reverse stress testing asks what combination of events would exhaust the liquidity buffer or breach a survival-horizon threshold. It is especially useful for identifying hidden concentrations and unrealistic assumptions.

3.4 Liquidity buffers

A liquidity buffer normally consists of cash, central-bank reserves where usable, and high-quality liquid assets (HQLA). The buffer must be legally and operationally available to the relevant entity and currency. A security that is technically liquid but pledged, trapped in a subsidiary, subject to transfer restrictions, or unavailable during market closure should not be counted at full value.

4. Regulatory Liquidity Standards

4.1 Liquidity Coverage Ratio

The LCR is designed to ensure that a bank holds enough HQLA to cover net cash outflows during a 30-calendar-day stress period. Its core structure is:

Net cash outflows generally equal stressed outflows minus stressed inflows, subject to regulatory caps and prescribed inflow recognition rules. HQLA are subject to eligibility criteria, valuation adjustments, and limits on asset composition. The applicable minimum and detailed treatment depend on the jurisdiction and regulatory framework.

The LCR is not a forecast of ordinary cash flows. It is a standardized stress metric. It does not capture every intraday obligation, every funding concentration, or all risks beyond the 30-day horizon.

Illustrative calculation. Suppose a bank has $900 million of eligible HQLA, stressed outflows of $1,200 million, and recognized inflows of $400 million. Net cash outflows are $800 million, assuming the inflows are fully recognizable under applicable rules.

The bank exceeds a 100% benchmark in this simplified example, but management must still assess currency, entity, intraday, and contingent-liquidity risks.

4.2 Net Stable Funding Ratio

The NSFR promotes stable funding over a longer structural horizon, generally one year. Its structure is:

Available stable funding (ASF) reflects the stability of funding sources, while required stable funding (RSF) reflects the liquidity characteristics and residual maturities of assets and off-balance-sheet exposures. Stable funding weights and RSF factors are prescribed by regulation and vary by category.

The NSFR is intended to discourage excessive reliance on short-term funding for less-liquid assets. It does not eliminate maturity transformation, nor does it replace detailed cash-flow and stress analysis. A bank may satisfy NSFR while facing a severe one-week cash shortage.

4.3 Relationship between LCR, NSFR, and internal metrics

5. Contingency Funding Plans

A contingency funding plan (CFP) specifies how the institution will respond to liquidity stress. It should be approved by the board or an appropriately delegated committee and integrated with recovery planning, risk appetite, capital planning, and communications policy.

A robust CFP contains:

1. Early-warning indicators: market spreads, share-price movements, deposit outflows, collateral calls, credit-rating changes, declining rollover rates, and utilization of committed facilities.
2. Escalation triggers: quantitative thresholds linked to management actions and decision rights.
3. Liquidity sources: cash reserves, HQLA monetization, secured funding, unsecured funding, asset sales, collateral substitution, and central-bank eligibility where applicable.
4. Governance: a crisis-management team, named alternates, authority limits, and documented contact lists.
5. Operational playbooks: settlement procedures, collateral mobilization, legal checks, payment prioritization, and reporting frequency.
6. Communication: coordinated messages to regulators, investors, counterparties, employees, and clients.
7. Testing: periodic simulations, reverse stress tests, and lessons-learned reviews.

The plan must distinguish between liquidity sources that are reliable in stress and those that are merely theoretical. Selling a large position in a thin market may be possible in normal conditions but unavailable without severe price impact during crisis.

6. Funds-Transfer Pricing and Liquidity Allocation

Funds-transfer pricing allocates the cost and benefit of funding, liquidity, capital, and contingent commitments to business lines, products, or transactions. It is an internal management tool rather than an external accounting price.

A basic FTP charge can be represented as:

The notional amount is measured in currency units, the FTP rate is an annualized decimal rate, and the time fraction is expressed in years. More advanced systems use matched-maturity curves, liquidity premiums, optionality charges, contingent-liquidity charges, and behavioral assumptions.

For a business line, a simplified net contribution may be expressed as:

FTP should transfer risk to the businesses that create it. A long-term illiquid loan should not receive the same internal funding price as a short-term self-liquidating trade. A deposit that is stable and operationally valuable may receive an FTP credit, but only after behavioral stability, insurance, concentration, and runoff risk are assessed.

Illustrative example. A desk uses $50 million of funding for 90 days. If the annual FTP rate is 4.8%, the simplified charge is:

The 360-day convention is an assumption. A different day-count convention changes the result and must be specified. The example excludes optionality, capital, credit, and operational charges.

Poorly designed FTP can encourage excessive maturity transformation, hide liquidity subsidies, or penalize businesses for risks they cannot control. Governance therefore requires independent methodology review, transparent attribution, periodic recalibration, and clear treatment of central costs.

7. Integrated Balance-Sheet Management

Liquidity management cannot be separated from profitability and strategy. A business decision may increase revenue while consuming scarce funding, collateral, capital, or intraday capacity. Integrated balance-sheet management therefore links:

• risk appetite and liquidity limits;
• asset and liability management;
• treasury funding plans;
• capital and leverage planning;
• collateral optimization;
• legal-entity and currency management;
• stress testing and recovery planning; and
• product-level FTP.

A liquidity risk appetite statement should define tolerance for negative gaps, minimum survival horizons, maximum funding concentrations, encumbrance levels, collateral usage, intraday exposure, and regulatory-ratio buffers. Limits should be actionable, monitored frequently, and connected to escalation procedures.

Collateral optimization involves selecting which assets to pledge, where to pledge them, and when to substitute or release them. The objective is not simply to minimize haircuts. It must also consider liquidity value, market impact, legal segregation, wrong-way risk, concentration, tax, and opportunity cost.

8. Applied Case: Meridian Securities During a Funding Shock

The following is a fictional illustrative case.

Background

Meridian Securities is a dealer and prime broker with $4.5 billion of liquid assets, $3.2 billion of repo funding, and significant derivatives activity. Its treasury reports an LCR of 118% and an NSFR of 106%. The bank’s board is therefore comfortable with its regulatory position.

Problem

A sharp decline in the value of a concentrated portfolio of corporate bonds causes repo lenders to raise haircuts from 6% to 12%. Two hedge-fund clients also receive margin calls and withdraw cash balances. At the same time, a clearing broker requires additional initial margin. Meridian’s regulatory ratios remain above their formal minima, but its three-day cumulative liquidity gap becomes negative by $420 million.

Analysis

The original funding capacity against $2.0 billion of bonds was:

After the haircut increase, capacity becomes:

The haircut change therefore removes $120 million of borrowing capacity. Client withdrawals and margin requirements create a further $300 million outflow. The combined pressure explains the $420 million shortfall. The bank’s LCR did not fully reveal the problem because the stress was concentrated in a short time window, a particular collateral pool, and a specific client business.

Approach and solution

The crisis-management team takes five actions:

1. It monetizes unencumbered government securities rather than selling the concentrated corporate-bond portfolio immediately.
2. It transfers eligible collateral to the clearing broker and requests permissible collateral substitutions.
3. It reduces new balance-sheet-intensive trades and reprices prime-brokerage funding through FTP.
4. It activates committed secured funding and notifies the regulator under the CFP.
5. It establishes hourly intraday reporting by legal entity, currency, clearing venue, and major counterparty.

Outcome

Meridian restores a positive three-day liquidity position without disorderly asset sales. A post-event review finds that its principal weakness was not the absolute size of the liquidity buffer but the concentration and mobilization assumptions underlying the buffer.

Learning points

• Regulatory ratios are necessary but not sufficient.
• Haircut risk can transform a collateral pool into a sudden funding gap.
• Client balances and derivatives margin must be modeled together.
• Legal-entity and intraday availability matter as much as consolidated resources.
• FTP should charge businesses for contingent and collateral liquidity consumption.

9. Governance, Regulation, Technology, and Ethics

The board is responsible for setting risk appetite and ensuring that senior management maintains effective liquidity systems. Treasury typically manages funding and buffers, while the independent risk function challenges assumptions, limits, and stress results. Internal audit evaluates governance, data integrity, model implementation, and compliance.

Data architecture is critical. Liquidity reports require timely, reconciled information on positions, collateral eligibility, encumbrance, settlement status, legal entity, currency, maturity, and counterparty. Artificial intelligence and machine-learning tools may improve cash-flow forecasting or identify unusual withdrawal patterns, but they should not replace expert judgment. Models can fail when relationships observed in historical data disappear during crises. Explainability, validation, override controls, privacy, and accountability are essential.

Ethically, institutions must avoid presenting regulatory compliance as proof of safety, hiding liquidity subsidies through opaque FTP, or delaying disclosure of material funding stress. Client assets and collateral must be segregated and used consistently with contractual and legal obligations. Stress assumptions should be conservative enough to protect stakeholders rather than merely produce comfortable ratios.

Contemporary developments include greater central clearing, increased margin sensitivity, digital settlement, real-time payments, tokenized assets, and faster transmission of confidence shocks through social media and electronic markets. These developments can improve efficiency but may also accelerate outflows and create new operational dependencies. Liquidity frameworks must therefore include cyber incidents, technology outages, third-party service disruption, and rapid digital withdrawals.

10. Best-Practice Framework

A mature liquidity framework should:

1. define liquidity risk across market, funding, collateral, settlement, and intraday dimensions;
2. maintain entity- and currency-level visibility rather than relying only on consolidated figures;
3. combine contractual, behavioral, scenario-based, and reverse stress analysis;
4. test haircuts, margin calls, withdrawals, market closures, and correlated shocks;
5. maintain an operationally usable HQLA buffer;
6. monitor encumbrance, concentration, and collateral mobility;
7. connect limits and early warnings to pre-agreed actions;
8. use FTP to allocate funding and contingent-liquidity costs fairly;
9. conduct regular CFP simulations and independent reviews; and
10. treat data quality, model risk, cyber resilience, and communication as liquidity controls.

Chapter Summary

Liquidity risk is the risk of being unable to meet obligations when due, while balance-sheet risk encompasses the broader interaction of funding, assets, leverage, maturity transformation, collateral, capital, and off-balance-sheet commitments. Market liquidity concerns the ability to transact without excessive price impact; funding liquidity concerns access to cash and collateral.

Liquidity gap analysis identifies the timing of expected deficits, while survival horizons estimate how long a bank can operate under defined stress. Collateral haircuts, margin calls, concentration, and intraday payment obligations can create rapid liquidity pressure even when regulatory ratios appear strong. The LCR addresses short-term stressed outflows, and the NSFR addresses structural funding stability. Neither replaces detailed internal analysis.

A contingency funding plan provides governance, indicators, escalation, funding sources, operational procedures, and communication arrangements. Funds-transfer pricing allocates liquidity and funding costs to the businesses that create them, supporting better product pricing and balance-sheet decisions. Effective management requires integrated governance, reliable data, realistic stress testing, operationally available buffers, and ethical communication.

Key Terms

Liquidity risk: The risk of failing to meet obligations when due without unacceptable loss.

Market liquidity risk: The risk of transacting only at a materially adverse price.

Funding liquidity risk: The risk of being unable to obtain cash or collateral when required.

Maturity transformation: Funding longer-term assets with shorter-term liabilities.

Liquidity gap: Difference between expected inflows and outflows in a time bucket.

Cumulative gap: Sum of net liquidity gaps through a specified time horizon.

Survival horizon: Period for which obligations can be met under a defined stress scenario.

Haircut: Discount applied to collateral value when determining borrowing capacity.

Margin call: Demand for additional collateral or cash due to exposure or valuation changes.

High-quality liquid asset (HQLA): Asset capable of being converted into cash quickly with limited loss.

LCR: Ratio of HQLA to prescribed 30-day net cash outflows.

NSFR: Ratio of available stable funding to required stable funding.

Contingency funding plan: Documented framework for responding to liquidity stress.

Intraday liquidity: Liquidity available to meet obligations during the business day.

Collateral encumbrance: Pledging of assets in a way that limits their alternative use.

Funding concentration: Dependence on a narrow set of funding providers or channels.

Funds-transfer pricing: Internal pricing of funding, liquidity, and related balance-sheet costs.

Behavioral assumption: Estimate of how clients or counterparties act differently from contractual terms.

Reverse stress test: Analysis of the conditions that would exhaust liquidity or breach a limit.

Review Questions

Short Answer Questions

1. Distinguish market liquidity risk from funding liquidity risk.
2. Why can a solvent investment bank still fail because of liquidity risk?
3. What is the purpose of a collateral haircut?
4. State the basic formulas for the LCR and NSFR.
5. Identify four essential components of a contingency funding plan.

Long Answer Questions

1. Explain how maturity transformation, wholesale funding dependence, and collateral calls can interact during a market crisis.
2. Discuss the construction, interpretation, and limitations of contractual, behavioral, and stressed liquidity gaps.
3. Compare the LCR, NSFR, survival horizon, and internal liquidity-buffer measures.
4. Explain how funds-transfer pricing can improve balance-sheet management and describe the risks of a poorly designed FTP system.
5. Evaluate the governance, data, operational, and ethical requirements of an effective liquidity-risk framework.

Analytical / Application Questions

1. A bank has $750 million of HQLA, stressed outflows of $1,000 million, and recognized inflows of $350 million. Calculate its simplified LCR and explain two reasons why the result may not guarantee short-term liquidity.
2. A securities portfolio worth $600 million is financed at a 7% haircut. The haircut rises to 14%. Calculate the reduction in borrowing capacity and explain the associated balance-sheet implications.
3. Design a three-stage response under a contingency funding plan for a bank whose three-day cumulative gap becomes negative, a major repo lender reduces capacity, and intraday margin calls increase.

Multiple Choice Questions with Answers

Question 1

Which statement best distinguishes funding liquidity risk from market liquidity risk?

A. Funding liquidity risk concerns inability to obtain cash; market liquidity risk concerns inability to transact without major price impact.

B. Funding liquidity risk concerns only accounting losses; market liquidity risk concerns only capital ratios.

C. Funding liquidity risk applies only to retail banks; market liquidity risk applies only to investment banks.

D. Funding liquidity risk is measured by NSFR alone; market liquidity risk is measured by LCR alone.

Correct Answer: A. Funding liquidity risk concerns inability to obtain cash; market liquidity risk concerns inability to transact without major price impact.

Question 2

A $200 million collateral pool is subject to a 10% haircut. What is its simplified borrowing capacity?

A. $180 million

B. $190 million

C. $200 million

D. $220 million

Correct Answer: A. $180 million

Question 3

A bank has $600 million of HQLA, stressed outflows of $900 million, and recognized inflows of $300 million. What is its simplified LCR?

A. 66.7%

B. 100%

C. 150%

D. 200%

Correct Answer: C. 150%

Question 4

What is the principal purpose of the NSFR?

A. To measure intraday payment timing

B. To promote stable funding over a longer structural horizon

C. To calculate the market value of derivatives

D. To determine the accounting value of equity

Correct Answer: B. To promote stable funding over a longer structural horizon

Question 5

In liquidity-gap analysis, a negative net gap for a time bucket means that:

A. Expected inflows exceed expected outflows

B. Expected outflows exceed expected inflows

C. The bank is necessarily insolvent

D. The bank has no liquid assets

Correct Answer: B. Expected outflows exceed expected inflows

Question 6

Which event most directly increases collateral liquidity risk?

A. A reduction in the haircut on eligible government securities

B. An increase in the haircut applied by secured lenders

C. A decline in operating expenses

D. An increase in long-term stable funding

Correct Answer: B. An increase in the haircut applied by secured lenders

Question 7

What does a survival horizon estimate?

A. The period until a bank’s accounting equity becomes zero

B. The period during which obligations can be met under a specified stress scenario

C. The legal maturity of every liability

D. The duration of a bond portfolio only

Correct Answer: B. The period during which obligations can be met under a specified stress scenario

Question 8

A business uses $40 million for 180 days at an annual FTP rate of 6%, using a 360-day convention. What is the simplified FTP charge?

A. $0.36 million

B. $1.20 million

C. $2.40 million

D. $4.00 million

Correct Answer: B. $1.20 million

Question 9

Which feature is most important for an operationally usable liquidity buffer?

A. It is available only at a distant subsidiary

B. It consists entirely of illiquid assets

C. It is unencumbered, eligible, and mobilizable when needed

D. It is counted at book value regardless of market conditions

Correct Answer: C. It is unencumbered, eligible, and mobilizable when needed

Question 10

Why can regulatory liquidity ratios fail to reveal an immediate intraday liquidity problem?

A. They always exclude all HQLA

B. They may not capture the precise timing of payments and margin obligations during the day

C. They measure only solvency and never liquidity

D. They are calculated only once every ten years

Correct Answer: B. They may not capture the precise timing of payments and margin obligations during the day