Skip to content

FRM Part II · FRM Exam Part II · Contingency Funding Planning

Which of the following is most clearly an early warning indicator of idiosyncratic (bank-specific) liquidity stress rather than market-wide stress?

Counterparties shortening tenors and raising haircuts on the bank's repo funding while peers are unaffected is a bank-specific signal. It shows counterparty concern about that institution, whereas interbank rate spikes, equity declines and wider credit spreads reflect market-wide stress affecting many firms.

  1. AA sharp increase in the interbank overnight rate across all banks
  2. BA broad equity market decline of 8% in one week
  3. CCounterparties demanding shorter tenors and higher haircuts on the bank's repo funding while peers are unaffectedCorrect
  4. DA general widening of corporate bond spreads

Explanation

Counterparties singling out the bank for tighter repo terms signals concern about that institution specifically. The other options affect banks broadly and indicate systemic or market-wide stress.

Did you get it right without looking?

One question tells you little. A timed set on Contingency Funding Planning shows your real accuracy, how long you take and where you lose marks.

Practise Contingency Funding PlanningFree diagnostic mock

More Contingency Funding Planning questions