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FRM Part II · FRM Exam Part II · Global Financial Stability Report, April 2025, Chapter 2 (Geopolitical Risk)

A risk manager is assessing how heightened geopolitical risk could affect a bank's funding. Which transmission channel is most consistent with the concerns raised in the IMF analysis of financial institutions' vulnerabilities?

Wholesale funding becoming costlier and harder to access is the consistent channel. Geopolitical stress raises risk premia and lowers investor appetite, so banks reliant on market funding face liquidity pressure. Insurance premiums, margins and capital rules do not change automatically in the way the other options claim.

  1. AWholesale funding costs rise and market access tightens as investors demand higher premia, pressuring liquidityCorrect
  2. BDeposit insurance premiums are automatically eliminated
  3. CNet interest margins become independent of rates
  4. DCapital requirements fall because risk weights are suspended

Explanation

Geopolitical stress raises risk premia and can reduce investor appetite, so wholesale funding becomes costlier and less available, hitting liquidity. The other options describe outcomes that do not follow from such a shock.

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