The correct answer is C. Bank A is facing a shortfall in legal reserves and needs to address this issue immediately. The most appropriate response for Bank A is to borrow from the Federal funds market, which allows banks to lend and borrow reserves on an overnight basis. This provides a quick and temporary solution to the shortfall in legal reserves.

Bank B, on the other hand, is experiencing a shortfall in long-term CD renewals. Borrowing from the Federal Home Loan Banks (FHLB) is the most suitable option for Bank B. The FHLB offers advances, which are loans to member banks that can be used to fund various assets, including mortgages. Bank B can match the term of its mortgage funding with the term of the advance, providing a stable long-term funding source.

The other options are not as suitable: A. Borrowing from the wholesale deposit market and funding through the Eurocurrency deposit market are both deposit funding sources and do not address the specific issues faced by Bank A and Bank B. B. Funding through the commercial paper market and borrowing from the Federal funds market are also not the best options, as they do not provide the immediate and long-term funding solutions needed by the banks. D. Issuing debentures and funding through the CP market are also not the most appropriate responses, as they may not provide the immediate and stable funding needed by the banks.

In summary, the Federal funds market is the best option for Bank A to address its immediate reserve shortfall, while borrowing from the FHLB is the most suitable long-term funding solution for Bank B's CD renewal shortfall.