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FRM Part II · FRM Exam Part II · Liquidity Risk Reporting and Stress Testing

A bank has available stable funding (ASF) of USD 480 million. Its required stable funding (RSF) comprises USD 600 million of loans at a 85% RSF factor, USD 200 million of unencumbered Level 1 securities at 5%, and off-balance-sheet commitments adding USD 10 million of RSF. What is the net stable funding ratio (NSFR), and how does it compare with the minimum?

The NSFR is about 90%, below the 100% minimum. Required stable funding is 510 for loans plus 10 for securities plus 10 for commitments, totalling USD 530 million. Available stable funding of USD 480 million divided by 530 gives roughly 90.6%, indicating a funding shortfall.

  1. AApproximately 90%, below the 100% minimumCorrect
  2. BApproximately 80%, below the 100% minimum
  3. CApproximately 92%, below the 100% minimum
  4. DApproximately 113%, above the 100% minimum

Explanation

RSF = 600x0.85 + 200x0.05 + 10 = 510 + 10 + 10 = 530. NSFR = 480/530 = 90.6%, about 90%, below 100%. Omitting the commitments gives 480/520 = 92.3%. Inverting the ratio gives 110%+, which is wrong.

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