With a significant increase in holdings of long-term government bonds, the bank's exposure to valuation risk from changes in interest rates has increased. While repricing gap management can help manage the impact of interest rate changes on net interest income (NII), it is not sufficient to address the valuation risk associated with long-term fixed-income securities. Implementing hedging strategies, such as interest rate swaps or futures, would allow the bank to mitigate this risk while continuing to manage its repricing gaps for NII stability.

A is incorrect: Simply adjusting repricing buckets doesn't address the fundamental issue of valuation risk associated with long-term bonds. Repricing gap management is primarily focused on NII, not market value fluctuations.

B is incorrect: While increasing floating-rate loans might seem like a way to increase asset sensitivity, it doesn't directly address the valuation risk of the existing bond portfolio. It also introduces other risks, such as increased credit risk if borrowers struggle with rising rates.

D is incorrect: Lengthening deposit maturities could create a mismatch if rates rise, as the bank would be locked into paying higher rates on deposits while the value of their bonds declines.