FDIC TE – Liquidity: Identify Funding Sources And Uses
(Questions With Fully Explained Answers)
What are the characteristics of core deposits and how are they defined by the
UBPR? Correct Answer - Stable, lower-cost funding sources
Typically lag behind other funding sources in repricing during rising interest
rates
Defined by the UBPR as:
- All transaction accounts
- MMDAs
- Non transaction other savings deposits (excluding MMDAs), and
- Time deposits of $250k and below,
- LESS fully insured brokered deposits of $250,000 and less
When might core deposits be considered less stable? Correct Answer - -
Out-of-area CDs of $250k or less, lacking a direct depositor relationship
- Transactional accounts obtained through third-party arrangements (e.g.,
broker-dealer, reciprocal networks). Even if the third party qualified for a
primary purpose exception.
Under what conditions can large deposits over $250k be considered stable, or
core deposits? Correct Answer - When the depositor has a long-term
relationship with the institution
- However, their uninsured status could make them less reliable if the
institution faces financial troubles
What are key elements of effective deposit management programs? Correct
Answer - - Detailed reports on deposit types and levels
- Projections for deposit growth
- Cost and interest rate analysis
- Defined marketing strategies
- Continuous revision of plans based on results
, What are examples of wholesale funding sources? Correct Answer - -
Brokered deposits
- Deposits through listing services
- Internet deposits
- Public and foreign deposits
- FHLB advances
Why are yield focused depositors less stable? Correct Answer - - They
prioritize high yield returns
- Often move funds quickly when better opportunities arise, similar to
wholesale investors
Institutions heavily dependent on wholesale funding require: Correct
Answer - - Enhanced funds management and measurement processes
- Comprehensive scenario modeling to plan for risks
- Contingency planning and capital management take on added significance
for institutions that rely heavily on wholesale funding.
What are factors for determining liquid asset requirements for banks?
Correct Answer - - Stability of the funding structure
- Risk Levels in the balance sheet
- Effectiveness of the bank's liquidity risk management program
What are examples of situations that would requiring higher levels of
unencumbered liquid assets? Correct Answer - Higher levels of
unencumbered liquid assets may be needed if the institution faces unstable
funding sources (like uninsured deposits), significant liability reductions,
concentrated credit risk, customer withdrawals, or financial stress (e.g.,
impaired capital market access or stress test results)
What are cash and due from accounts generally used for? Correct Answer -
Crucial for daily liquidity needs
Used to:
- Fund deposit withdrawals, especially in stress situations
- Disburse loan proceeds
(Questions With Fully Explained Answers)
What are the characteristics of core deposits and how are they defined by the
UBPR? Correct Answer - Stable, lower-cost funding sources
Typically lag behind other funding sources in repricing during rising interest
rates
Defined by the UBPR as:
- All transaction accounts
- MMDAs
- Non transaction other savings deposits (excluding MMDAs), and
- Time deposits of $250k and below,
- LESS fully insured brokered deposits of $250,000 and less
When might core deposits be considered less stable? Correct Answer - -
Out-of-area CDs of $250k or less, lacking a direct depositor relationship
- Transactional accounts obtained through third-party arrangements (e.g.,
broker-dealer, reciprocal networks). Even if the third party qualified for a
primary purpose exception.
Under what conditions can large deposits over $250k be considered stable, or
core deposits? Correct Answer - When the depositor has a long-term
relationship with the institution
- However, their uninsured status could make them less reliable if the
institution faces financial troubles
What are key elements of effective deposit management programs? Correct
Answer - - Detailed reports on deposit types and levels
- Projections for deposit growth
- Cost and interest rate analysis
- Defined marketing strategies
- Continuous revision of plans based on results
, What are examples of wholesale funding sources? Correct Answer - -
Brokered deposits
- Deposits through listing services
- Internet deposits
- Public and foreign deposits
- FHLB advances
Why are yield focused depositors less stable? Correct Answer - - They
prioritize high yield returns
- Often move funds quickly when better opportunities arise, similar to
wholesale investors
Institutions heavily dependent on wholesale funding require: Correct
Answer - - Enhanced funds management and measurement processes
- Comprehensive scenario modeling to plan for risks
- Contingency planning and capital management take on added significance
for institutions that rely heavily on wholesale funding.
What are factors for determining liquid asset requirements for banks?
Correct Answer - - Stability of the funding structure
- Risk Levels in the balance sheet
- Effectiveness of the bank's liquidity risk management program
What are examples of situations that would requiring higher levels of
unencumbered liquid assets? Correct Answer - Higher levels of
unencumbered liquid assets may be needed if the institution faces unstable
funding sources (like uninsured deposits), significant liability reductions,
concentrated credit risk, customer withdrawals, or financial stress (e.g.,
impaired capital market access or stress test results)
What are cash and due from accounts generally used for? Correct Answer -
Crucial for daily liquidity needs
Used to:
- Fund deposit withdrawals, especially in stress situations
- Disburse loan proceeds
