hard · FRM Part 2 Liquidity & Treasury Risk

From a contingent-liquidity-risk standpoint, what is the most important flaw this FTP design hides from the business line?

1. The FTP charges the loan as if 7-year deposit funding is available for its life, but the firm's real funding is 3-year debt that must be rolled — concealing rollover/refinancing risk and the cost of the term-liquidity gap beyond 3 years from the business line that creates it.
2. The FTP overcharges the business line, because the 7-year behavioral deposit life used for crediting exceeds the bank's actual 3-year funding tenor, meaning the unit is effectively paying a term-liquidity premium for funding duration it never truly consumes or benefits from.
3. The real flaw is that deposits should instead be credited at their contractual overnight maturity rather than behavioral life, a change that would make the 10-year loan appear fully funded on a rolling basis and eliminate the underlying term-liquidity gap entirely from the framework.
4. The design correctly transfers essentially all liquidity risk to Treasury through the FTP mechanism, so the business line bears none of it, and the only meaningful residual issue left is basis risk between the fixed loan rate and the floating senior-debt coupon reset.

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