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Explanation:
The correct answer is A.
Things to Remember
The classification of deposits as short-term or long-term has significant implications for a bank's liquidity metrics. Long-term deposits are generally considered more stable and reliable, which can improve the bank's liquidity position and financial stability.
The behavior of deposits is a key factor in determining their classification. Deposits that exhibit long-term behavior, such as consistency and stability, can be treated as long-term, even if they are technically overnight deposits.
The size or significance of the deposits is not a determining factor in their classification. Even if overnight deposits form a significant part of the bank's funding, they cannot be treated as long-term unless they exhibit long-term behavior.
Predictability of deposits is also not a determining factor in their classification. While predictability can help the bank manage its cash flows and liquidity, it does not imply that the deposits are stable or long-term.
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Q.4051 VTR bank has been receiving most of its funding from current accounts and rolling deposits. Under what circumstance will the bank treat overnight balances as long-term according to regulation?
A
If the overnight balances can be demonstrated to be acting as long-term in “behavioral” terms
B
If the overnight deposits are predictable
C
If the overnight deposits are the primary funding source for bank
D
None of the above