FRM Part II · FRM Exam Part II · Managing Nondeposit Liabilities
During market stress, a bank's unsecured wholesale lenders refuse to roll maturing funding. Which pre-arranged measure is most appropriate to protect the bank against this specific liquidity risk?
Holding unencumbered high-quality liquid assets and committed contingent funding sources best protects against refusal to roll wholesale funding. They provide cash quickly when unsecured markets close. Depending on one lender, repricing loans or lengthening loan duration does not supply immediate liquidity.
- AIncreasing the share of funding from a single large, loyal lender
- BMaintaining a stock of unencumbered high-quality liquid assets and committed contingent funding sourcesCorrect
- CRaising lending rates to boost net interest income
- DLengthening the duration of the loan portfolio
Explanation
If unsecured funding disappears, the bank must meet outflows from liquid assets that can be sold or pledged and from committed backup lines. Relying on one lender adds concentration, higher loan rates do not provide cash quickly, and longer loans worsen the maturity mismatch.
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