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

A bank has total liabilities of USD 1,000 million, of which USD 600 million are core deposits, USD 250 million are wholesale nondeposit liabilities maturing within one year, and USD 150 million are other long-term debt. Management defines the wholesale funding reliance ratio as short-term wholesale nondeposit liabilities divided by total liabilities. What is the ratio, and how should it be interpreted versus a peer ratio of 15%?

The ratio is 25 percent, calculated as USD 250 million of short-term wholesale liabilities divided by USD 1,000 million of total liabilities. That is above the 15 percent peer level, so the bank relies more heavily on potentially volatile, rate-sensitive funding than its peers.

  1. A25%, indicating greater reliance on volatile funding than the peerCorrect
  2. B15%, indicating the same reliance as the peer
  3. C40%, indicating lower reliance than the peer
  4. D62.5%, indicating greater reliance on volatile funding than the peer

Explanation

250/1,000 = 25%. This exceeds the 15% peer level, implying higher dependence on potentially volatile funding. 40% adds the long-term debt (250+150) and is wrong; 62.5% is 250/400 (non-core only), the wrong base.

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