FRM Part II · FRM Exam Part II · Liquidity and Leverage
Which funding source is generally most vulnerable to a rapid withdrawal during a market-wide stress event?
Overnight wholesale funding from money market funds is most vulnerable because it must be rolled daily and providers withdraw quickly when worried about credit or market conditions. Insured retail deposits, long-dated debt and equity are far more stable during stress.
- AInsured retail demand deposits from long-standing customers
- BLong-term subordinated debt with ten years to maturity
- COvernight wholesale funding from money market fundsCorrect
- DCommon equity raised through a rights issue
Explanation
Overnight wholesale funding must be rolled each day and providers are sensitive to credit and market concerns, so it can disappear quickly. Insured retail deposits are sticky, long-term debt does not mature soon, and equity is permanent.
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