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

A bank treasurer sees that 60% of the bank's wholesale funding comes from three money market funds. Which metric would best quantify this concentration for monitoring purposes?

The best measure is the share of total funding supplied by the largest counterparties, monitored against set limits. It directly shows dependence on a few providers. Net interest margin, fixed-floating mix and return on equity do not measure funding concentration.

  1. ANet interest margin on the wholesale book
  2. BShare of total funding provided by the largest counterparties, tracked against internal limitsCorrect
  3. CThe ratio of fixed-rate to floating-rate liabilities
  4. DThe bank's return on equity

Explanation

Concentration is measured by the proportion of funding supplied by the largest counterparties, instruments or currencies, compared with limits. Margin, rate-mix and ROE measure profitability or interest rate exposure, not dependence on a few providers.

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