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FRM Part II · FRM Exam Part II · Early Warning Indicators

A bank classifies its early warning indicators into quantitative and qualitative groups. Which of the following is most appropriately treated as a qualitative indicator?

Relationship managers reporting that clients are questioning the bank's health and shifting balances is a qualitative indicator, since it rests on judgement and soft information. The loan-to-deposit ratio, short-term funding share and change in deposit cost are numerical measures and therefore quantitative indicators.

  1. AReports from relationship managers that key clients are asking about the bank's financial health and moving balancesCorrect
  2. BThe ratio of loans to deposits
  3. CThe percentage of funding maturing within 30 days
  4. DThe three-month change in the average cost of term deposits

Explanation

Qualitative indicators rely on judgement and soft information, such as client sentiment, market rumours or press coverage. The loan-to-deposit ratio, short-term funding share and deposit cost change are measured numerically, so they are quantitative.

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