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FRM Part II · FRM Exam Part II · Governance

A bank sets a single-name limit of 10% of Tier 1 capital. Tier 1 capital is USD 2,000 million. The bank already has USD 150 million of drawn loans and USD 40 million of undrawn committed (fully drawable) facilities to Borrower X. Management wishes to add a new facility. Treating undrawn commitments at 100% of exposure, what is the maximum new facility that stays within the limit?

The limit is USD 200 million (10% of USD 2,000 million). Existing exposure is USD 190 million, drawn plus fully drawable undrawn commitments, so only USD 10 million of headroom remains. Ignoring the undrawn commitments would wrongly show USD 50 million available.

  1. AUSD 10 millionCorrect
  2. BUSD 50 million
  3. CUSD 160 million
  4. DUSD 200 million

Explanation

Limit = 10% x 2,000 = USD 200 million. Existing exposure = 150 + 40 = 190. Headroom = 10 million. USD 50 million wrongly ignores undrawn commitments (200-150). USD 160 million is limit minus undrawn only. USD 200 million ignores existing exposure.

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