medium · FRM Part 2 Liquidity & Treasury Risk
A bank's deposit unit gathers $1 billion in deposits. Matched-maturity rates suggest an FTP credit of 3.5%, but Treasury only credits 3.0%, claiming a 0.5% deduction for 'centralized HQLA costs'.
What is the institutional consequence of this FTP subsidy if Treasury uses the 0.5% to offer cheaper funding to the lending units?
- Increased transparency of the bank's overall liquidity position for external regulators
- Arbitrage-free pricing existing between the deposit-gathering branch and central treasury
- Improved LCR and NSFR ratios across the whole consolidated banking group
- Over-origination of illiquid assets and under-investment in the deposit franchise
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