The UK's Financial Conduct Authority (FCA) is worried about the quality of risk governance at the new
Question:
The UK's Financial Conduct Authority (FCA) is worried about the quality of risk governance at the new challenger bank, MONZO BANK and is sending in a team for a close and continuous supervision meeting. As preparation for the meeting, as a FCA employee you have been asked to review the Bank's balance sheet, undertake a GAP analysis and prepare some preliminary opinions.
ASSETS | Millions | LIABILITIES | Millions |
Motor Car Loans (Avg. Maturity 5 Years, Fixed at 8%) | 50.00 | Deposits (1.5% Floating) | 40.00 |
Consumer Credit (Visa & MC, Fixed at 20%, Average Duration 2) | 70.00 | Debt to other Banks (Avg. Maturity 2 Years, Floating at 4% | 45.00 |
Investment Portfolio (Bonds only, Avg Yield 4%, Duration of 3) | 20.00 | Issued Bonds (Avg Maturity 5 Years, Duration of 3, 7% Yield) | 25.00 |
Money Market (Floating at 3%) | 35.00 | Other Liabilities (Avg Maturity 1 Year, Floating Rate) | 60.00 |
Home Mortgages (Avg. Maturity 15 years, Fixed at 6%) | 10.00 | Bank Capital-Equity (Beta = 1.2, Investors Expect ROE = 15%) | 15.00 |
TOTAL ASSETS | 185.00 | TOTAL LIABILITIES | 185.00 |
- Comparing the magnitude of Assets with Liabilities from the perspective of Maturity, what risk-exposures has MONZO BANK created and what impact might it have upon
Net Interest Income (NII)?
- Comparing the magnitude of Assets with Liabilities from the perspective of Fixed versus Floating interest rates, what risk-exposures has MONZO BANK created and what impact might it have upon NII?
- Comparing the magnitude of Assets with Liabilities using Duration method have they created any mis-match (exposures) through non matching the time-weighted value of assets with liabilities. What impact would a Duration mis-match have upon NII??
- Comparing the magnitude of Assets with Liabilities from the perspective of Credit Quality, what risk-exposures has MONZO BANK created and what impact might it have upon NII? How might net credit exposure be mitigated?
- Overall, what is your opinion of the risk-exposures of MONZO BANK? How might various risks be neutralized or mitigated?Is eliminating risk necessarily a good idea?
International Marketing And Export Management
ISBN: 9781292016924
8th Edition
Authors: Gerald Albaum , Alexander Josiassen , Edwin Duerr