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FRM Part II · FRM Exam Part II · Managing Nondeposit Liabilities

A bank has the following USD 1 billion wholesale funding ladder: USD 200 million brokered CDs maturing in 20 days, USD 300 million senior notes maturing in 6 months, and USD 500 million senior notes maturing in 4 years. The treasurer wants to reduce the concentration of maturities within a 12-month horizon. Which action best addresses this objective while keeping total funding unchanged?

The best action is to replace the short brokered CDs with longer notes and stagger the refinancing of the 6-month notes. This lowers the amount maturing within 12 months and spreads maturities, avoiding a concentrated refinancing wall.

  1. ARefinance the 20-day brokered CDs with new brokered CDs of 25-day maturity
  2. BReplace the brokered CDs with 3-year notes and stagger the 6-month notes' replacement across several later datesCorrect
  3. CReplace the 4-year notes with overnight borrowing to lower cost
  4. DIssue all new funding at one date with the same maturity to simplify rollover

Explanation

Lengthening the short CDs and spreading refinancing dates reduces the amount that must be rolled in the 12-month window and avoids a cliff. The 25-day option barely changes the profile; overnight borrowing increases near-term rollover needs; single-date issuance creates a new maturity wall.

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