Module: | MODULE A: INTERNATIONAL BANKING
Q217: Consider the following statements regarding the liquidity management regulations for Banking Units operating in the international financial services centre:
Statement 1: While these Banking Units are exempt from domestic cash reserve requirements, they are mandated to maintain a Liquidity Coverage Ratio and a Net Stable Funding Ratio, which can legally be maintained at the global parent bank level subject to prior regulatory approval.
Statement 2: Banking Units that are authorized to accept permitted deposits from retail individuals are legally required to maintain a Retail Deposit Reserve Ratio on a daily basis at 3 percent of the outstanding individual deposits from the previous working day.
Statement 2: Banking Units that are authorized to accept permitted deposits from retail individuals are legally required to maintain a Retail Deposit Reserve Ratio on a daily basis at 3 percent of the outstanding individual deposits from the previous working day.
✅ Correct Answer: C
The regulatory framework ensures that while Banking Units enjoy offshore freedoms, systemic liquidity is still rigorously protected.
Statement 1 is correct.
The Liquidity Coverage Ratio ensures a bank holds sufficient high-quality liquid assets to survive a 30-day stress scenario, while the Net Stable Funding Ratio ensures long-term funding stability.
Unlike domestic branches, a Banking Unit in the centre is permitted to maintain these critical ratios at its global parent bank level, provided it obtains prior approval from the unified regulator.
Statement 2 is also correct.
To protect individual depositors in an offshore environment, any Banking Unit that accepts retail deposits must maintain a specialized Retail Deposit Reserve Ratio.
This ratio mandates that 3 percent of the outstanding retail deposits be held in highly liquid, risk-free assets on a daily basis, acting as a specialized safeguard in the absolute absence of traditional domestic reserve ratios.
Statement 1 is correct.
The Liquidity Coverage Ratio ensures a bank holds sufficient high-quality liquid assets to survive a 30-day stress scenario, while the Net Stable Funding Ratio ensures long-term funding stability.
Unlike domestic branches, a Banking Unit in the centre is permitted to maintain these critical ratios at its global parent bank level, provided it obtains prior approval from the unified regulator.
Statement 2 is also correct.
To protect individual depositors in an offshore environment, any Banking Unit that accepts retail deposits must maintain a specialized Retail Deposit Reserve Ratio.
This ratio mandates that 3 percent of the outstanding retail deposits be held in highly liquid, risk-free assets on a daily basis, acting as a specialized safeguard in the absolute absence of traditional domestic reserve ratios.