Managing Nondeposit Liabilities: formula sheet

Key formulas

Funding structure

Total funding = Equity + Core deposits + Nondeposit (wholesale) liabilities

Use it to see how much of the balance sheet depends on market funding.

Wholesale funding ratio

Wholesale funding ratio = Nondeposit liabilities ÷ Total liabilities

Higher ratio means greater reliance on less stable funding. Definitions vary by institution, so follow the question.

Repo cash raised

Cash received = Collateral market value × (1 − haircut)

A higher haircut means less cash against the same collateral.

Repo interest

Interest = Cash × repo rate × days ÷ 360

USD money-market convention is usually actual/360. Use the basis given.

Discount-basis CP cost

Annualized yield = (Face − Proceeds) ÷ Proceeds × 360 ÷ days

Use the question's stated day-count convention.

Repo interest (simple, actual/360 style)

Repurchase price = Cash lent × (1 + repo rate × days ÷ day-count basis)

Use the day-count basis given in the question (commonly 360 for USD money markets). Interest = repurchase price − cash lent.

Haircut

Haircut = (Collateral value − Cash lent) ÷ Collateral value

Cash lent = Collateral value × (1 − haircut). Haircut is measured on collateral value, not on cash.

Collateral needed

Collateral required = Cash needed ÷ (1 − haircut)

Divide by (1 − haircut). Do not multiply by (1 + haircut).

Margin call after price fall

Required collateral value = Cash lent ÷ (1 − haircut); call = required − current collateral value

Applies when the haircut is fixed and collateral is marked to market.

Leverage from haircut

Maximum leverage ≈ 1 ÷ haircut

A 5% haircut means about 20 times assets to own funds. Small haircut rises are very costly.

CP discount yield

Discount yield = (Face − Price) ÷ Face × (360 ÷ days)

US CP is quoted on a discount basis and a 360-day year. It understates the true return.

CP price

Price = Face × (1 − discount yield × days ÷ 360)

Rearranged from the discount yield. Use it to find the cash raised.

Money market (investment) yield

Yield = (Face − Price) ÷ Price × (360 ÷ days)

Divides by price, not face, so it is higher than the discount yield for the same paper.

Rollover need

Funding gap = maturing wholesale funding − new funding raised

A positive gap must be met from buffers, lines or asset sales.

Key rule

Unsecured + short tenor + uninsured + rate-sensitive investors = high run risk

ABCP adds a maturity mismatch and relies on sponsor liquidity support.

Lendable value of collateral

Lendable value = Market value × (1 − haircut)

Haircut is the percentage discount applied by the lender. A higher haircut means less borrowing capacity.

Borrowing capacity

Capacity = Σ [Market value of each collateral pool × (1 − its haircut)]

Add lendable values across pools. Each asset type has its own haircut.

Unencumbered assets

Unencumbered assets = Total assets − Pledged (encumbered) assets

Tracks the free collateral available for contingent funding.

Collateral required for a loan

Required market value = Loan amount ÷ (1 − haircut)

Use it to find how much collateral you must pledge for a target advance.

Encumbrance ratio

Encumbrance ratio = Encumbered assets ÷ Total assets

A higher ratio means less protection for unsecured creditors and less spare collateral.

All-in cost of purchased funds

All-in cost = (interest + fees + insurance assessments) ÷ net funds raised

Include broker fees and reserve or insurance costs, not only the quoted rate.

Net funds raised

Net funds = amount raised − issuance costs − required reserves

Use this as the denominator when costs reduce usable funds.

Weighted average cost of funding

WACF = Σ (wᵢ × costᵢ)

wᵢ is the share of each funding source in total funding.

LCR

LCR = stock of HQLA ÷ total net cash outflows over 30 days ≥ 100%

Wholesale and brokered deposits carry higher run-off rates than stable insured retail deposits.

NSFR

NSFR = available stable funding ÷ required stable funding ≥ 100%

Liabilities with residual maturity of one year or more get a high ASF factor; short wholesale funding gets less.

Maturity concentration

Concentration (%) = debt maturing in a period ÷ total term debt

High values signal refinancing risk.

Funding concentration share

Share of source i = Funding from source i ÷ Total funding

Compare against internal limits. Track top lenders, instruments, currencies and maturities separately.

Herfindahl-Hirschman Index (HHI) of funding

HHI = Σ (share_i)²

Shares as decimals. Higher HHI means more concentration. Equal shares across n sources give 1 ÷ n.

Net liquidity gap

Gap in bucket = Cash inflows − Cash outflows

Negative means a shortfall in that bucket.

Cumulative gap

Cumulative gap at bucket t = Σ gaps from first bucket to t

Survival depends on the cumulative figure, not a single bucket.

Stressed outflow

Stressed outflow = Balance × (1 − rollover rate)

Use a lower rollover rate for less stable, uninsured or secured-by-weak-collateral funding.

Survival horizon test

Survive if liquid buffer + contingent sources ≥ cumulative net outflow over the horizon

Apply haircuts to buffer assets before comparing.

Quick revision

• Nondeposit liabilities are funds raised outside core deposits, mainly in wholesale markets.
• Wholesale funding is scalable and fast but more rate-sensitive and less stable than core deposits.
• Federal funds are unsecured, typically overnight, lent between depository institutions.
• A repo is a sale of securities with an agreement to repurchase later; economically it is secured borrowing.
• A higher haircut means less cash raised against the same collateral.
• Commercial paper is unsecured, short-term and generally issued by strong credits; it depends on investor confidence.
• Eurodollars are US dollar deposits held outside the United States.
• FHLB advances and central bank facilities are secured and require eligible collateral.
• Secured funding can cause asset encumbrance, reducing collateral available in stress.
• Longer-term debt lowers rollover risk but usually costs more.
• Brokered and large uninsured deposits can leave quickly when confidence or rates change.
• Concentration by source, tenor, counterparty or currency raises the chance of a funding shock; diversify and keep a contingency funding plan.

Common mistakes

• Treating brokered deposits as core deposits because they are insured. Fix: Classify by stability. They are rate-driven and placed by brokers, so they behave like wholesale funds.
• Calling repo unsecured funding. Fix: Repo is secured by securities. Fed funds are unsecured.
• Calling repo unsecured, or fed funds secured Fix: Fed funds are unsecured reserve loans. Repo is collateralised. Say it in one sentence before answering.
• Mixing up repo and reverse repo Fix: Same trade, two sides. The cash borrower does the repo. The cash lender does the reverse repo. Always ask who gives cash.
• Treating eurodollars as euro-denominated deposits. Fix: Eurodollars are USD deposits held outside the US banking system, regardless of location.
• Dividing by price when given a CP discount yield. Fix: Discount yield divides by face value. Only the money market yield divides by price.
• Calculating lendable value as market value × haircut. Fix: The haircut is the discount. Lendable value is market value × (1 − haircut).
• Treating the discount window as a routine funding source. Fix: Treat it as a contingent backstop. Stigma and policy intent mean it is not meant for regular funding.
• Treating brokered deposits as core deposits because they are insured. Fix: Insurance removes credit-driven runs but not rate-driven exit. The funds follow yield, so stability is lower than relationship deposits.
• Saying all brokered deposits are prohibited. Fix: Restrictions apply to banks that are not well capitalised. Well-capitalised banks may use them.

Exam tips

• Expect scenario questions asking which source is least stable or what happens when haircuts rise.
• Read the day-count basis and haircut before calculating.
• Know the secured versus unsecured split for each instrument.
• Link wholesale reliance to rollover, concentration and liquidity risk, not just cost.
• Watch for brokered deposits placed as a trap in 'core deposit' options.
• Always state first whether the question is about credit risk (fed funds) or funding and rollover risk (repo).
• For reverse repo, check who lends cash. Questions often flip the perspective to test this.
• Higher haircuts on weaker collateral and in stress are the standard mechanism behind runs on repo. Link them to leverage and forced asset sales.