Answer: Exposure to funding liquidity risk.

## Explanation **Funding liquidity risk** is the correct answer because: - **Maturity mismatch** occurs when a bank's assets (loans, investments) have longer maturities than its liabilities (deposits, short-term borrowings) - This creates a situation where the bank may not have sufficient liquid assets to meet its short-term obligations - During the 2007-2008 financial crisis, banks faced: - Short-term funding drying up - Inability to roll over short-term debt - Difficulty in meeting immediate cash demands **Why other options are incorrect:** - **A**: While cash withdrawals are related, the core issue is broader funding availability, not just deposit withdrawals - **B**: Credit default risk relates to borrowers failing to repay, not the timing mismatch between assets and liabilities - **D**: Legal confrontations were a consequence, not the primary problem caused by maturity mismatch The maturity mismatch problem specifically creates funding liquidity risk because banks need to continuously refinance short-term liabilities while holding longer-term assets that cannot be quickly liquidated.

Author: Tanishq Prabhu