Bank Funding & Position Management

Banks earn income on the assets shown on their balance sheets. These assets include cash, loans to customers/clients, trading positions, and other investments – all of which must be funded by the bank on the liabilities and equity side of the balance sheet. This course explores the various funding methods used by banks as well as the risks involved. These risks were exposed by the global financial crisis, with the result that regulators imposed strict requirements concerning bank funding and introduced a number of liquidity ratios in this regard. These are also described in this course. In addition, the course focuses on how various money market positions are created and covered, together with an explanation of the management of interest rate gap exposures on mismatched future cash flows.


    On completion of this course, you will be able to:

    Recognize how a bank funds its assets through its liabilities and equity

    Identify the different money market positions that bank must manage on a daily basis

    Measure the gap exposure that a bank can be exposed to as a result of its business and trading operations


    Topic 1: Bank Funding

    Bank Balance Sheet Structure

    Balance Sheet Funding

    o Liabilities

    o Equity

    Assets to be Funded

    Managing Liquidity Risk

    o Liquidity Coverage Ratio (LCR)

    o Net Stable Funding Ratio (NSFR)

    Topic 2: Managing Money Market Positions

    How Money Market Positions Are Created

    Transactions Influencing a Bank’s Cash Position

    Overnight & Tom/Next Positions

    o Covering Overnight & Tom/Next Exposures

    Spot Positions

    Other Positions

    Financing Strategic Trading & Investment Positions

    Covering Longer-Term Exposures

    Topic 3: Managing Gap Exposures

    Timing Mismatches of Cash Positions

    Gap Risk

    Gap Reports

    Analyzing Gap Reports

    Calculating the Interest Rate Gap Exposure

    Gap Risk Management

    Covering Gap Exposures

    o Make Balance Sheet or Product Adjustments

    o Keep Rate-Sensitive Assets & Liabilities within Specific Ratio Ranges

    o Place Limits on Gap Exposure as a Percentage of Earning Assets

    o Use Interest Rate Derivatives to Hedge Gap Exposure



    60 Minutes

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