Skip to content

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

A bank pledges residential mortgage loans with an unpaid balance of USD 200 million to its FHLB. The FHLB applies a 25% haircut to the collateral value (lendable value = balance x (1 - haircut)). The bank already has USD 60 million of advances outstanding. What is the maximum additional advance available?

The additional borrowing capacity is USD 90 million. Collateral of USD 200 million after a 25% haircut supports USD 150 million of borrowing, and subtracting the USD 60 million of advances already outstanding leaves USD 90 million available.

  1. AUSD 90 millionCorrect
  2. BUSD 150 million
  3. CUSD 140 million
  4. DUSD 50 million

Explanation

Lendable value = 200 x (1 - 0.25) = USD 150 million. Subtracting existing advances of 60 gives additional capacity of USD 90 million. USD 150 million ignores existing advances; USD 140 million subtracts 60 from the unhaircut balance.

Did you get it right without looking?

One question tells you little. A timed set on Managing Nondeposit Liabilities shows your real accuracy, how long you take and where you lose marks.

Practise Managing Nondeposit LiabilitiesFree diagnostic mock

More Managing Nondeposit Liabilities questions