Skip to content

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

A treasurer notes that 45% of the bank's term funding matures in a single quarter three years from now. Which action most directly addresses this concentration risk in long-term debt?

Build a maturity ladder by issuing debt with staggered tenors. This spreads refinancing needs over time, so the bank is not forced to refinance a large share of its term funding in one quarter, which reduces rollover and market-access risk.

  1. ABuild a maturity ladder by issuing debt across varied tenors so that no single period holds a disproportionate share of refinancing needsCorrect
  2. BIssue additional debt that matures in the same quarter to benefit from market familiarity
  3. CReplace the term debt with overnight deposits to remove maturity concentration
  4. DReduce disclosure to investors so that concentration is less visible to the market

Explanation

Laddering spreads refinancing needs across dates and so limits the amount that must be refinanced under any one market condition. Adding more in the same quarter worsens concentration. Overnight funding increases rollover risk. Reducing disclosure does not reduce risk and harms investor confidence.

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