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

A treasurer notes that the bank's LCR is comfortably above 100%, but a large share of its assets are long-dated loans funded by short-term wholesale borrowing that rolls over beyond 30 days. Which Basel III measure best addresses this structural funding mismatch?

The net stable funding ratio addresses this problem. It requires available stable funding to cover required stable funding over a one-year horizon, limiting reliance on short-term wholesale funding for long-dated assets, a gap the 30-day LCR does not capture.

  1. AThe leverage ratio
  2. BThe net stable funding ratioCorrect
  3. CThe countercyclical capital buffer
  4. DThe large exposures limit

Explanation

The NSFR requires stable funding to match the liquidity profile of assets and off-balance-sheet activities over a one-year horizon, which targets maturity mismatch. The LCR covers only 30 days. The leverage ratio, buffer and large exposures limit are capital or concentration tools, not funding-structure measures.

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