FRM Part II · FRM Exam Part II · Monitoring Liquidity
Which of the following is best described as an asset-side source of liquidity risk for a bank?
Drawdowns on committed credit lines are an asset-side liquidity source, because the bank must fund loans it has pledged to provide, often when markets are stressed. The other options concern deposit mix, borrowing maturity and funding cost, which are liability-side issues.
- ADrawdowns on committed credit lines by corporate borrowersCorrect
- BA decline in the share of insured retail deposits
- CA shortening of the maturity of wholesale borrowing
- DA rating downgrade that raises the bank's own funding spreads
Explanation
Drawdowns on committed lines turn off-balance-sheet commitments into funded assets, consuming cash unexpectedly. This is an asset-side or contingent-claim source. The other options relate to the bank's liabilities and funding.
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