Skip to content

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

A regional bank's treasurer is reviewing the funding mix. Which of the following best describes why nondeposit (purchased) liabilities such as federal funds purchased and negotiable CDs are generally considered more volatile than core deposits?

Nondeposit liabilities are more volatile because their providers are large, rate-sensitive and credit-sensitive, and are often uninsured. They can refuse to roll over or demand higher rates quickly when concerns arise, unlike sticky relationship-based core deposits.

  1. AThey are typically priced below retail deposits and so attract less interest-sensitive investors
  2. BThey are sourced from rate-sensitive, often large and informed, providers who can withdraw quickly when credit concerns or better rates ariseCorrect
  3. CThey are insured in full by the government, which discourages roll-over
  4. DThey carry longer contractual maturities, which limits the bank's flexibility

Explanation

Purchased funds come from sophisticated, rate- and credit-sensitive counterparties, often uninsured, who can refuse to roll over quickly. Core deposits are sticky and relationship-based. The other options misstate pricing, insurance or maturity features.

Did you get it right without looking?

One question tells you little. A timed set on Managing Nondeposit Liabilities shows your real accuracy, how long you take and where you lose marks.

Practise Managing Nondeposit LiabilitiesFree diagnostic mock

More Managing Nondeposit Liabilities questions