Risk Management interview preparation

Questions

100

Traced to a firm

37

Firms

12

Updated

September 2026

Asked at

All firmsUBS14MSCI7BLBlackRock5FTFranklin Templeton3Oaktree Capital Management2Scotiabank2Jane Street1Moody's1Neuberger Berman1PIMCO1SSState Street1TSTruist Securities1

Topic

All topicsMarket risk and VaR14Tail risk and stress testing5Greeks and sensitivities5Credit risk11Counterparty risk and CVA6Operational risk5Model risk and validation6Regulatory capital7Liquidity risk and ALM6Statistics and quant foundations7Indian regulation7Risk governance and appetite4Markets and macro9Fit and career8

Level

AnyCoreIntermediateHard

Type

AnyTechnicalCaseBrainteaserMarket viewFit

1. 060Distinguish funding liquidity risk from market liquidity risk.Liquidity risk and ALMCoretechnicalTreasury and ALMBank market risk

   Say this

   Funding liquidity risk is not being able to meet your obligations as they fall due. Market liquidity risk is not being able to sell an asset at anything near its marked price. They're different risks, and the danger is that each one triggers the other.

   Then walk it

   1. Funding liquidity is a balance sheet and cash flow problem: deposits leave, a wholesale line isn't rolled, a margin call lands, and you need cash today. It's binary and it's fatal. You are either able to pay or you are not.
   2. Market liquidity is a price problem: bid-offer, depth, and how far the price moves against you when you try to sell size. It's continuous, and it shows up as a haircut on what your book is really worth.
   3. The spiral is the real answer. You need funding, so you sell assets. Selling into a thin market depresses the price. The lower mark reduces your collateral value and your capital, which makes funding harder, so you sell more. That's the liquidity spiral, and it's what turned 2008 from a credit event into a systemic one.
   4. Measurement differs completely. Funding liquidity: contractual and behavioural cash flow ladders, survival horizon, LCR and NSFR, and a stress test on deposit outflow. Market liquidity: bid-offer spreads, days of average daily volume to exit, and a liquidity-adjusted VaR or an exit-cost haircut.
   5. Worked example: a bond book marked at 100 crore, where the position is ten days of average volume. In a stress you might realise 92, so the honest liquidity-adjusted value is 92, not 100. The mark is not the exit price, and that 8 crore is the market liquidity risk in money.
   6. FRTB codified this by making liquidity horizons vary from 10 to 120 days by risk factor, so illiquid risk now costs more capital. That's the regulatory acknowledgement that a mark is not a price you can get.
   7. The thing to say without prompting: almost every bank failure is ultimately a funding liquidity failure. Solvency problems kill banks slowly and liquidity kills them in a week.

   Where candidates lose it

   Conflating the two, or giving definitions without the interaction. The answer that earns respect explains the spiral in both directions and says that a marked price is not an exit price. And naming that banks fail from liquidity, not capital, frames everything else you say.

   Expect next

   • How would you measure market liquidity risk in a bond book?
   • Which one killed more institutions in 2008?
   • How does FRTB handle illiquidity?
2. 061Explain LCR and NSFR.Liquidity risk and ALMIntermediatetechnicalTreasury and ALMRegulatory reporting

   Say this

   Both are Basel III liquidity ratios with a minimum of 100 percent. LCR is a 30-day survival test: high quality liquid assets over stressed net outflows. NSFR is a one-year structural test: available stable funding over required stable funding. Short-term shock versus long-term funding mismatch.

   Then walk it

   1. LCR numerator, HQLA: Level 1 is cash, central bank reserves and most sovereign debt at no haircut. Level 2A is high-grade covered and corporate bonds at a 15 percent haircut, Level 2B is lower-rated corporates and some equities at 25 to 50 percent, and Level 2 is capped at 40 percent of the total.
   2. LCR denominator: outflows minus capped inflows, with prescribed run-off rates. Stable retail deposits 3 to 5 percent, less stable retail 10, operational wholesale deposits 25, non-operational corporate deposits 40, and financial institution deposits 100. Inflows are capped at 75 percent of outflows, so you can't rely on collecting to pay.
   3. That run-off table is the heart of it, and it encodes a real judgement: insured retail deposits are sticky, and money from other banks disappears entirely. SVB's deposits were overwhelmingly uninsured corporate money, which the table would treat as the fastest-running kind.
   4. NSFR pairs funding stability against asset liquidity over a year. Equity and long-term debt count fully as stable funding, retail deposits at 90 to 95 percent, short wholesale funding at little or nothing. On the asset side, long-dated loans need high stable funding and cash needs none.
   5. So NSFR is a structural constraint on maturity transformation, which is the business banks are in. It limits how much of a long loan book you can fund with three-month wholesale paper.
   6. Indian specifics: RBI implemented LCR from 2015 and NSFR from 2021, both at 100 percent, and has periodically adjusted the treatment of SLR securities within HQLA. The 2024 draft revisions raised run-off assumptions on retail deposits with internet and mobile banking access, which is a direct response to how fast deposits can now move.
   7. The critique to volunteer: both are point-in-time ratios with prescribed assumptions, and they can be window-dressed at reporting dates. And in a real run, the run-off rates have been far higher than the table assumes. SVB lost a quarter of its deposits in a day.

   Where candidates lose it

   Mixing up the horizons or quoting the ratios without any run-off rates. Knowing that financial institution deposits run off at 100 percent and stable retail at 3 to 5 is what shows you've seen the schedule. And the point that real runs are faster than the assumed rates is the part with judgement in it.

   Expect next

   • What counts as HQLA, and what haircuts apply?
   • Why did banks with a 100 percent LCR still fail in 2023?
   • How does NSFR constrain the lending business?
3. 062What is interest rate risk in the banking book, and how do you measure it?Liquidity risk and ALMIntermediatetechnicalTreasury and ALMIndian bank risk and treasury

   Say this

   IRRBB is the risk that rate moves hurt the banking book, and you measure it two ways that often disagree. Economic value of equity is the present value view over the full life of the balance sheet. Net interest income is the earnings view over one to three years.

   Then walk it

   1. EVE: revalue all assets, liabilities and off-balance-sheet items under a rate shock and look at the change in net present value. It's the long-horizon, economic answer, and it's where a big fixed-rate asset book shows up immediately.
   2. NII: project interest income and expense over one to three years under the shock. It's the accounting and earnings answer, and it's the one management actually cares about because it hits reported profit.
   3. They can point in opposite directions, and that's the interesting part. A bank funding long fixed-rate mortgages with short deposits looks fine on NII when rates rise slowly, because deposit rates lag, while EVE is deeply negative from day one. That gap is exactly the SVB configuration.
   4. The Basel standardised framework prescribes six shock scenarios: parallel up and down, steepener, flattener, short rate up and short rate down. Non-parallel scenarios matter because most banks are not exposed to the level so much as to the shape.
   5. Then the behavioural assumptions, which are where all the model risk lives. Non-maturity deposits have no contractual maturity so you assume one. Prepayment on fixed loans. Early withdrawal on term deposits. Pipeline commitments. Move the deposit assumption from a two-year to a five-year effective duration and the answer changes sign.
   6. The supervisory outlier test: if EVE sensitivity exceeds 15 percent of Tier 1 capital under any of the six scenarios, you attract supervisory attention under Pillar 2. That's the number to know.
   7. In India, RBI requires both the traditional gap approach and duration-based EVE reporting, and IRRBB is a core Pillar 2 item in ICAAP. Indian banks carry large SLR portfolios of government bonds, so rate risk in the banking book is structurally significant and the AFS versus HTM classification decision drives how much of it hits reported capital.
   8. How you manage it: reprice the book, use interest rate swaps to shorten effective asset duration, adjust deposit pricing, and set limits on both EVE and NII sensitivity so neither view can be ignored.

   Where candidates lose it

   Giving only one of the two measures. If you say EVE and not NII, or the reverse, you've described half the framework and missed the tension that makes IRRBB interesting. And the behavioural deposit assumption is the single biggest driver of the answer, so name it as the main model risk.

   Expect next

   • EVE and NII disagree. Which do you act on?
   • What is the supervisory outlier test?
   • How would you hedge a negative EVE position?

Firm tags come from public, anonymous candidate reports on Wall Street Oasis: strong signal, not sworn testimony. Firms are named as the places a question was reported, not as partners of Fin Maverick. Answers are written for this page to show how to think out loud; they are not scripts to recite.