Answer: Rapid growth in the leverage ratio with significant dependence on short-term repo financing.

## 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.

Author: LeetQuiz .