Question 3 Banks have been faced with additional demand for loans from corporates, bond rating downgrades...

 

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Question 3 Banks have been faced with additional demand for loans from corporates, bond rating downgrades and corporate credit defaults during the Covid-19 pandemic. Interest rates have remained low and, in many cases, fallen. a) Discuss the additional financial risks to banks arising during Covid-19 and the impact on bank profitability and regulatory liquidity targets (NSFR and LCR). YOUR ANSWER to Question 3a) b) Explain the changes made to Basel regulatory requirements relating to liquidity (NSFR and LCR) following the global financial crisis of 2007-8. [6 marks] YOUR ANSWER to Question 3b) c) Discuss the extent to which NSFR and LCR and other regulatory changes have protected the financial system during the current Covid- 19 related crisis. YOUR ANSWER to Question 3c) Question 3 continued Information for use in Question 3 parts d) and e) Bank P has the following assets and liabilities: Cash 4 Treasury Bonds (> 1 6 year) Corporate Bonds with 10 A+ rating Equity securities Loans to small business customers 10 40 Non-current assets. TOTAL 30 100 Tier 1 capital TOTAL The bank has a target NSFR of at least 100%. Required: Retail deposits ('stable') Retail deposits ('less stable') Wholesale deposits Borrowings Tier 2 capital YOUR ANSWER to Question 3d) 20 20 45 5 5 5 100 d) Calculate Bank P's Net Stable Funding Ratio (NSFR) and state whether it meets the target. Question 3 Banks have been faced with additional demand for loans from corporates, bond rating downgrades and corporate credit defaults during the Covid-19 pandemic. Interest rates have remained low and, in many cases, fallen. a) Discuss the additional financial risks to banks arising during Covid-19 and the impact on bank profitability and regulatory liquidity targets (NSFR and LCR). YOUR ANSWER to Question 3a) b) Explain the changes made to Basel regulatory requirements relating to liquidity (NSFR and LCR) following the global financial crisis of 2007-8. [6 marks] YOUR ANSWER to Question 3b) c) Discuss the extent to which NSFR and LCR and other regulatory changes have protected the financial system during the current Covid- 19 related crisis. YOUR ANSWER to Question 3c) Question 3 continued Information for use in Question 3 parts d) and e) Bank P has the following assets and liabilities: Cash 4 Treasury Bonds (> 1 6 year) Corporate Bonds with 10 A+ rating Equity securities Loans to small business customers 10 40 Non-current assets. TOTAL 30 100 Tier 1 capital TOTAL The bank has a target NSFR of at least 100%. Required: Retail deposits ('stable') Retail deposits ('less stable') Wholesale deposits Borrowings Tier 2 capital YOUR ANSWER to Question 3d) 20 20 45 5 5 5 100 d) Calculate Bank P's Net Stable Funding Ratio (NSFR) and state whether it meets the target. Question 3 Banks have been faced with additional demand for loans from corporates, bond rating downgrades and corporate credit defaults during the Covid-19 pandemic. Interest rates have remained low and, in many cases, fallen. a) Discuss the additional financial risks to banks arising during Covid-19 and the impact on bank profitability and regulatory liquidity targets (NSFR and LCR). YOUR ANSWER to Question 3a) b) Explain the changes made to Basel regulatory requirements relating to liquidity (NSFR and LCR) following the global financial crisis of 2007-8. [6 marks] YOUR ANSWER to Question 3b) c) Discuss the extent to which NSFR and LCR and other regulatory changes have protected the financial system during the current Covid- 19 related crisis. YOUR ANSWER to Question 3c) Question 3 continued Information for use in Question 3 parts d) and e) Bank P has the following assets and liabilities: Cash 4 Treasury Bonds (> 1 6 year) Corporate Bonds with 10 A+ rating Equity securities Loans to small business customers 10 40 Non-current assets. TOTAL 30 100 Tier 1 capital TOTAL The bank has a target NSFR of at least 100%. Required: Retail deposits ('stable') Retail deposits ('less stable') Wholesale deposits Borrowings Tier 2 capital YOUR ANSWER to Question 3d) 20 20 45 5 5 5 100 d) Calculate Bank P's Net Stable Funding Ratio (NSFR) and state whether it meets the target. Question 3 Banks have been faced with additional demand for loans from corporates, bond rating downgrades and corporate credit defaults during the Covid-19 pandemic. Interest rates have remained low and, in many cases, fallen. a) Discuss the additional financial risks to banks arising during Covid-19 and the impact on bank profitability and regulatory liquidity targets (NSFR and LCR). YOUR ANSWER to Question 3a) b) Explain the changes made to Basel regulatory requirements relating to liquidity (NSFR and LCR) following the global financial crisis of 2007-8. [6 marks] YOUR ANSWER to Question 3b) c) Discuss the extent to which NSFR and LCR and other regulatory changes have protected the financial system during the current Covid- 19 related crisis. YOUR ANSWER to Question 3c) Question 3 continued Information for use in Question 3 parts d) and e) Bank P has the following assets and liabilities: Cash 4 Treasury Bonds (> 1 6 year) Corporate Bonds with 10 A+ rating Equity securities Loans to small business customers 10 40 Non-current assets. TOTAL 30 100 Tier 1 capital TOTAL The bank has a target NSFR of at least 100%. Required: Retail deposits ('stable') Retail deposits ('less stable') Wholesale deposits Borrowings Tier 2 capital YOUR ANSWER to Question 3d) 20 20 45 5 5 5 100 d) Calculate Bank P's Net Stable Funding Ratio (NSFR) and state whether it meets the target. Question 3 Banks have been faced with additional demand for loans from corporates, bond rating downgrades and corporate credit defaults during the Covid-19 pandemic. Interest rates have remained low and, in many cases, fallen. a) Discuss the additional financial risks to banks arising during Covid-19 and the impact on bank profitability and regulatory liquidity targets (NSFR and LCR). YOUR ANSWER to Question 3a) b) Explain the changes made to Basel regulatory requirements relating to liquidity (NSFR and LCR) following the global financial crisis of 2007-8. [6 marks] YOUR ANSWER to Question 3b) c) Discuss the extent to which NSFR and LCR and other regulatory changes have protected the financial system during the current Covid- 19 related crisis. YOUR ANSWER to Question 3c) Question 3 continued Information for use in Question 3 parts d) and e) Bank P has the following assets and liabilities: Cash 4 Treasury Bonds (> 1 6 year) Corporate Bonds with 10 A+ rating Equity securities Loans to small business customers 10 40 Non-current assets. TOTAL 30 100 Tier 1 capital TOTAL The bank has a target NSFR of at least 100%. Required: Retail deposits ('stable') Retail deposits ('less stable') Wholesale deposits Borrowings Tier 2 capital YOUR ANSWER to Question 3d) 20 20 45 5 5 5 100 d) Calculate Bank P's Net Stable Funding Ratio (NSFR) and state whether it meets the target. Question 3 Banks have been faced with additional demand for loans from corporates, bond rating downgrades and corporate credit defaults during the Covid-19 pandemic. Interest rates have remained low and, in many cases, fallen. a) Discuss the additional financial risks to banks arising during Covid-19 and the impact on bank profitability and regulatory liquidity targets (NSFR and LCR). YOUR ANSWER to Question 3a) b) Explain the changes made to Basel regulatory requirements relating to liquidity (NSFR and LCR) following the global financial crisis of 2007-8. [6 marks] YOUR ANSWER to Question 3b) c) Discuss the extent to which NSFR and LCR and other regulatory changes have protected the financial system during the current Covid- 19 related crisis. YOUR ANSWER to Question 3c) Question 3 continued Information for use in Question 3 parts d) and e) Bank P has the following assets and liabilities: Cash 4 Treasury Bonds (> 1 6 year) Corporate Bonds with 10 A+ rating Equity securities Loans to small business customers 10 40 Non-current assets. TOTAL 30 100 Tier 1 capital TOTAL The bank has a target NSFR of at least 100%. Required: Retail deposits ('stable') Retail deposits ('less stable') Wholesale deposits Borrowings Tier 2 capital YOUR ANSWER to Question 3d) 20 20 45 5 5 5 100 d) Calculate Bank P's Net Stable Funding Ratio (NSFR) and state whether it meets the target.

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3 a Following are some financial risks to banks arising due to Covid19 Credit Risk COVID19 crisis tr... View the full answer