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FRM Part II · FRM Exam Part II · Liquidity Risk Management

A bank is meeting the minimum LCR of 100% but is heavily reliant on overnight wholesale funding to finance 10-year loans. Which Basel III measure is specifically designed to address this structural funding mismatch?

The Net Stable Funding Ratio addresses this problem. It compares available stable funding with the stable funding required by a bank's assets over a one-year horizon, discouraging the financing of long-term loans with short-term wholesale funds. Capital buffers and the leverage ratio do not measure funding stability.

  1. AThe leverage ratio
  2. BThe Net Stable Funding RatioCorrect
  3. CThe capital conservation buffer
  4. DThe countercyclical capital buffer

Explanation

The NSFR requires available stable funding to cover required stable funding over a one-year horizon, limiting reliance on short-term wholesale funding to support long-dated assets. The leverage ratio and capital buffers address capital adequacy, not funding structure.

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