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FRM Part II · FRM Exam Part II · Early Warning Indicators

A bank sets an amber trigger for its EWI on the share of funding from its top five wholesale providers at 30% of total funding, and a red trigger at 40%. Total funding is USD 50 billion and the top five providers supply USD 17 billion. A further USD 3.5 billion of new funding is expected from these same providers, with total funding rising by the same USD 3.5 billion. What is the resulting status?

The ratio becomes 20.5 divided by 53.5, about 38.3%, which lies between the 30% amber and 40% red triggers, so the status is amber. Treating total funding as unchanged would wrongly give 41% and a red signal.

  1. AGreen, because the ratio stays below 30%
  2. BAmber, because the ratio is between 30% and 40%Correct
  3. CRed, because the ratio exceeds 40%
  4. DAmber, because the ratio is exactly 30%

Explanation

Currently 17/50 = 34%, already above amber. After the addition: (17+3.5)/(50+3.5) = 20.5/53.5 = 38.3%. This is between 30% and 40%, so amber. Ignoring that total funding also rises would give 20.5/50 = 41%, wrongly red.

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