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FRM Part II · FRM Exam Part II · Managing Nondeposit Liabilities

A bank funds USD 400 million of assets with USD 100 million of equity, USD 200 million of core deposits and USD 100 million of wholesale funds, all of which mature within 30 days. Core deposits are assumed to be fully stable. What share of total liabilities (excluding equity) is wholesale funding and what is the bank's reliance ratio on short-term wholesale funds relative to total assets?

Wholesale funding is 100 of 300 million of non-equity liabilities, or 33.3%, and 100 of 400 million of total assets, or 25%. The asset-based ratio uses total assets as the denominator, which includes equity-funded assets.

  1. A33.3% of liabilities; 25% of assetsCorrect
  2. B50% of liabilities; 25% of assets
  3. C33.3% of liabilities; 33.3% of assets
  4. D25% of liabilities; 50% of assets

Explanation

Liabilities excluding equity = 200 + 100 = 300 million; wholesale share = 100/300 = 33.3%. Relative to assets of 400 million, 100/400 = 25%. Using total liabilities as the base for the assets ratio gives the 33.3% distractor.

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