Explanation

Option C is the correct answer because:

• Rapid growth in leverage ratio indicates the bank is taking on more debt relative to its equity, which increases financial risk
• Significant dependence on short-term repo financing creates rollover risk - if the bank cannot renew these short-term borrowings, it faces immediate liquidity problems
• This combination signals potential liquidity vulnerability as the bank relies heavily on short-term funding that could dry up during market stress

Why other options are incorrect:

• A. Credit rating upgrade: This is actually positive and indicates improved creditworthiness, not a liquidity problem
• B. Increased asset diversification: This reduces risk concentration and improves liquidity management, not a warning sign
• D. Positive publicity: This enhances market confidence and funding access, opposite of a liquidity warning

Early warning indicators focus on signals that precede liquidity stress, such as funding concentration, rapid growth, or deteriorating market perceptions.