There seem to be different opinions on what was the right answer to the LCR question. Personally, I answered that it changed to 140%, given the following:
For the numerator:
- The bank took 2B in deposits (a liability) and invested it in High Quality Liquid
Assets (this much it said). It did not specify what kind of HQLA it invested it into, so I just assumed that there was a 0% haircut for these. Therefore, the numerator must increase from 12B to 14B.
For the denominator:
- The deposits, being a liability for the Bank, count as possible cash outflows, but Basel gives them a multiplication factor of 0%, 5% or 10%, depending on the nature of the deposits (look
here). Again, as it did not specify, and given that the only 3 possible answers were 1,37=14/(10+2*0,1), 1,386=14/(10+2*0,05) or 1,4 =(14/10+0), I chose the latter, as it was the only possibility given in the 4 answers.
Furthermore, It did not sit right with me that an instution takes deposits (a safe liability), it invests them in HQLA (great for liquidity purposes), and the ratio gets worse! Let's remember that the LCR is a 30 day liquidity measure, and we are talking of deposits here. This argument made me think that there were only two possible right answers: 140% or 130% (or something of the sort)
I have no idea if I got it right, but it looked good to me at the moment!
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