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FRM Part II · FRM Exam Part II · Liquidity and Reserves Management: Strategies and Policies

A bank has total wholesale funding of USD 1,000 million: USD 300 million from Counterparty A, USD 250 million from B, USD 200 million from C, and USD 250 million spread among many small providers each under 2%. The bank's policy limit is that no single counterparty exceeds 20% of wholesale funding. What is the minimum amount of funding that must be moved away from the breaching counterparties to comply, assuming the total stays at USD 1,000 million?

The bank must move USD 150 million. The cap is 20% of USD 1,000 million, or USD 200 million per counterparty. Counterparty A is USD 100 million over and B is USD 50 million over, while C is exactly at the limit, so total excess is USD 150 million.

  1. AUSD 100 million
  2. BUSD 150 millionCorrect
  3. CUSD 50 million
  4. DUSD 130 million

Explanation

The limit is 20% x 1,000 = USD 200 million. A exceeds by 100 and B by 50; C is exactly at the limit. Total excess = 150. Using only A's excess (100) misses B's breach.

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