easy · FRM Part 2 Liquidity & Treasury Risk
A bank faces a 'funding liquidity' crisis. It must sell assets to meet margin calls, but the fire-sale prices depress its remaining collateral value, triggering further margin calls.
This feedback loop is best described as:
- A Type II Validation Error.
- The Convexity Effect.
- The Doom Loop.
- The Liquidity Spiral.
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