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

1. 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)?

1. 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?
2. 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??
3. 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?
4. 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?

Answer rating: 100% (QA)

MONZO BANK has a wellbalanced maturity structure of assets and liabilities with slightly longer average maturity on the asset side 5 years for Motor C... View the full answer