Explanation:
The capacity ratio, which compares net loans and leases to total assets, indicates a decrease in liquidity when net loans and leases increase in proportion to total assets. This is primarily due to the illiquid nature of loans and leases.
A is incorrect. Liquidity improves when the number of pledged or unavailable securities decreases in relation to the total number of securities.
B is incorrect. When loan commitments as a percentage of assets decline, liquidity rises.
C is incorrect. When overnight loans are more than overnight borrowing, liquidity rises.
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Q.5382 John Doe is an investment analyst at ABC Investment Bank. ABC Investment Bank is the underwriter for a commercial paper that one of the country's national banks wants to issue. John Doe is performing an analysis of the national bank's financial statements and calculating its liquidity indicators over the past five years. Which of the following trends over this period should John Doe be most concerned about?
A
The ratio of pledged securities at the bank has been decreasing.
B
The loan commitments ratio for the bank has been decreasing.
C
The average net position of the bank in repurchase agreements and government funds has increased.
D
The capacity ratio of the bank has been rising.
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