Problems and Projects
12-1.
Rhinestone National Bank reports the following figures in its current Report of
Condition:
Assets (millions)
Liabilities and Equity (millions)
Cash and interbank
deposits
$50
Core deposits
$50
Short-term security
investments
15
Large negotiable CDs
150
Total loans, gross
400
Deposits placed by brokers
65
Long-term securities
150
Other deposits
45
12-
6
Chapter 12 - Managing and Pricing Deposit Services
Other assets
10
Money market liabilities
195
Other liabilities
65
Equity capital
55
Total assets
$625
Total liabilities and equity capital
$625
a. Evaluate the funding mix of deposits and nondeposit sources of funds employed by
Rhinestone. Given the mix of its assets, do you see any potential problems? What changes would
you like to see management of this bank make? Why?
Core deposits/Assets = 8.00 percent
Large Negotiable CDs/Assets = 24.00 percent
Deposits placed by Brokers/Assets = 10.40 percent
Other Deposits/Assets = 7.20 percent
Money Market Liabilities/Assets = 31.20 percent
Other Liabilities/Assets = 10.40 percent
Equity Capital/Asset = 8.80 percent
The proportion of core deposits at Rhinestone is exceptionally low, while large CDs and other
Money-market borrowings make up more than 55 percent of the bank’s total funding sources.
This funding mix tends to subject the bank to excessive vulnerability to quick withdrawal of funds and high
interest-rate risk exposure. Rhinestone also appears to be excessively dependent on brokered deposits
which are highly volatile and interest-sensitive. Adding in these brokered deposits, more than half of
Rhinestone’s assets are funded with highly interest-sensitive deposits and money-market borrowings.
This study source was downloaded by 100000850872992 from CourseHero.com on 04-03-2023 08:13:30 GMT -05:00
https://www.coursehero.com/file/14954248/Week-4-assignment-1/
12-1.
Rhinestone National Bank reports the following figures in its current Report of
Condition:
Assets (millions)
Liabilities and Equity (millions)
Cash and interbank
deposits
$50
Core deposits
$50
Short-term security
investments
15
Large negotiable CDs
150
Total loans, gross
400
Deposits placed by brokers
65
Long-term securities
150
Other deposits
45
12-
6
Chapter 12 - Managing and Pricing Deposit Services
Other assets
10
Money market liabilities
195
Other liabilities
65
Equity capital
55
Total assets
$625
Total liabilities and equity capital
$625
a. Evaluate the funding mix of deposits and nondeposit sources of funds employed by
Rhinestone. Given the mix of its assets, do you see any potential problems? What changes would
you like to see management of this bank make? Why?
Core deposits/Assets = 8.00 percent
Large Negotiable CDs/Assets = 24.00 percent
Deposits placed by Brokers/Assets = 10.40 percent
Other Deposits/Assets = 7.20 percent
Money Market Liabilities/Assets = 31.20 percent
Other Liabilities/Assets = 10.40 percent
Equity Capital/Asset = 8.80 percent
The proportion of core deposits at Rhinestone is exceptionally low, while large CDs and other
Money-market borrowings make up more than 55 percent of the bank’s total funding sources.
This funding mix tends to subject the bank to excessive vulnerability to quick withdrawal of funds and high
interest-rate risk exposure. Rhinestone also appears to be excessively dependent on brokered deposits
which are highly volatile and interest-sensitive. Adding in these brokered deposits, more than half of
Rhinestone’s assets are funded with highly interest-sensitive deposits and money-market borrowings.
This study source was downloaded by 100000850872992 from CourseHero.com on 04-03-2023 08:13:30 GMT -05:00
https://www.coursehero.com/file/14954248/Week-4-assignment-1/
