EF4334 Class Exercise

BASEL III
1. Bank A has the following balance sheet (in millions of dollars).

Assets
Cash
$ 12
Deposits at the Fed
19
Treasury securities
125
GNMA securities
54
Loans to AA rated corporations 38
Loans to BB rated corporations 106
Premises
245
Total
$599

Liquidity
level
Level 1
Level 1
Level 1
Level 2A
Level 2A
Level 2B

Liabilities and Equity

Stable retail deposits
$ 60
Less stable retail deposits
100
Unsecured wholesale funding from:
Stable small business deposits
180
Less stable small business deposits 49
Nonfinancial corporations
150
Equity
60
Total
$599

Run-off
factor
3%
10
5
10
75

Cash inflows over the next 30 days from the banks performing assets are $8 million. Calculate the LCR for
Bank A.

Level 1 assets = $12 + $19 + $125 = $156

Level 2A assets =
L2 Capped at 40% of HQLA = $156 x 0.4/0.6 = $104

Level 2B assets =
L2B Capped at 15% of HQLA =
Level 2B assets (subject to the cap) =

Total HQLA =

Cash outflows:
Stable retail deposits
Less stable retail deposits
Stable small business deposits
Less stable small business deposits
Non-financial corporates
Total cash outflows over next 30 days
Cash inflows over next 30 days
Total net cash outflows over next 30 days

Liquidity coverage ratio =

$60 x 0.03 = $ 1.80

$150 x 0.75 = 112.50

8.00

(cap: not applicable)

2. Bank B has the following balance sheet (in millions of dollars).

Required stable
funding
Assets
factor
Cash
$ 50
0%
Deposits at the Fed
70
5
Treasury bonds
145
5
Qualifying marketable securities 50
0
(maturity < 1 year)
FNMA bonds
60
20
Loans to AA- corporations
540
65
(maturity > 1 year)
Mortgages (unencumbered)
285
65
Premises
135 100
Total
$1,335

Available amount of stable funding

=

Required amount of stable funding

=

Net stable funding ratio =

Available stable
funding
factor
$250
90%
90
80
120
0

Liabilities and Equity

Stable retail deposits
Less stable retail deposits
CDs maturing in 6 months
Unsecured wholesale funding from:
Stable small business deposits
125
Less stable small business deposits 100
Nonfinancial corporations
450
Equity
200
Total
$1,335

90
80
50
100

EF4334 Class Exercise Solution

1. Bank A has the following balance sheet (in millions of dollars).

Assets
Cash
$ 12
Deposits at the Fed
19
Treasury securities
125
GNMA securities
54
Loans to AA rated corporations 38
Loans to BB rated corporations 106
Premises
245
Total
$599

Liquidity
level
Level 1
Level 1
Level 1
Level 2A
Level 2A
Level 2B

Liabilities and Equity

Stable retail deposits
$ 60
Less stable retail deposits
100
Unsecured wholesale funding from:
Stable small business deposits
180
Less stable small business deposits 49
Nonfinancial corporations
150
Equity
60
Total
$599

Run-off
factor
3%
10
5
10
75

Cash inflows over the next 30 days from the banks performing assets are $8 million. Calculate the LCR for
Bank A.

Level 1 assets = $12 + $19 + $125 = $156

Level 2A assets (with haircut) = ($54 + $38) 0.85 = $78.2
L2 Capped at 40% of HQLA = $156 x 0.4/0.6 = $104
Level 2B assets (with haircut) = $106 x 0.5 = $53
L2B Capped at 15% of HQLA = ($156 + $78.2) x 0.15/0.85 = $41.33
Level 2B assets (subject to the cap) = $104 $78.2
Total HQLA = $156 + $78.2 + ($104 $78.2) = $260

Cash outflows:
Stable retail deposits
Less stable retail deposits
Stable small business deposits
Less stable small business deposits
Non-financial corporations
Total cash outflows over next 30 days

$60 x 0.03 = $ 1.80

$100 x 0.10 = 10.00
$180 x 0.05 = 9.00
$49 x 0.10 = 4.90
$150 x 0.75 = 112.50
$138.20

Cash inflows over next 30 days

Total net cash outflows over next 30 days

8.00
$130.20

Liquidity coverage ratio = $260m / $130.2m = 199.69% > 100%

(cap: not applicable)

2. Bank B has the following balance sheet (in millions of dollars).

Required stable
funding
Assets
factor
Cash
$ 50
0%
Deposits at the Fed
70
5
Treasury bonds
145
5
Qualifying marketable securities 50
0
(maturity < 1 year)
FNMA bonds
60
20
Loans to AA- corporations
540
65
(maturity > 1 year)
Mortgages (unencumbered)
285
65
Premises
135 100
Total
$1,335

Available stable
funding
factor
$250
90%
90
80
120
0

Liabilities and Equity

Stable retail deposits
Less stable retail deposits
CDs maturing in 6 months
Unsecured wholesale funding from:
Stable small business deposits
125
Less stable small business deposits 100
Nonfinancial corporations
450
Equity
200
Total
$1,335

90
80
50
100

Calculate the NSFR for BancTwo.

The net stable funding ratio for BancTwo is calculated as follows:

Available amount of stable funding = $200 x 1.00 + ($250 + $125) x 0.90 + ($90 + $100) x 0.80 + $450 x
0.50 = $914.5m
Required amount of stable funding
= $50 x 0.00 + ($70 + $145) x 0.05 + $60 x 0.20 + ($540 + $285) x 0.65 + $135 x 1.00 = $694m
Net stable funding ratio = $914.5m/$694m = 131.77% > 100%