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FRM Part II · FRM Exam Part II · The US Dollar Shortage in Global Banking and the International Policy Response

A non-US bank holds long-term US dollar assets funded largely by short-term dollar wholesale borrowing and FX swaps. Which post-crisis regulatory measure most directly addresses the maturity mismatch in its dollar funding?

The Net Stable Funding Ratio most directly addresses the mismatch because it requires banks to fund longer-term assets with stable funding over a one-year horizon. The Liquidity Coverage Ratio covers only a 30-day stress window, and the capital-based measures do not target funding maturity structure.

  1. AThe Liquidity Coverage Ratio, which addresses stress outflows over 30 days only
  2. BThe Net Stable Funding Ratio, which requires stable funding against longer-term assets over a one-year horizonCorrect
  3. CThe Basel III leverage ratio, which sets a floor on Tier 1 capital to total exposure
  4. DThe countercyclical capital buffer, which raises capital in credit booms

Explanation

The NSFR compares available stable funding over a one-year horizon with the required stable funding for assets and off-balance-sheet items, so it targets structural maturity mismatch. The LCR is the key distractor: it covers only a 30-day stress period and does not limit long-term reliance on short-term funding. Leverage and countercyclical buffers are capital measures.

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