Consider the following simple bank balance sheet; Assets $ million Liabilities and equity $ million Cash 20
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Question:
Consider the following simple bank balance sheet;
Assets | $ million | Liabilities and equity | $ million |
Cash | 20 | Demand deposits | 250 |
Interbank lending | 150 | Savings accounts | 20 |
3-month T-notes | 230 | 3-month CDs | 230 |
2-year T-bonds | 100 | 6-month CDs | 350 |
5-year corporate bonds (floating rate) (repriced @ six months) | 500 | 2-year CDs | 425 |
2- year commercial loans (floating rate) (repriced @ six months) | 475 | Interbank borrowings | 225 |
15-year variable rate mortgages (repriced annually) | 350 | Overnight repos | 260 |
30-year fixed-rate mortgages (repriced monthly) | 375 |
Subordinated debt: 7 year fixed rate | 100 |
Premises and equipment | 60 | Equity | 400 |
Assume demand deposits act as core deposits for the bank and the implicit cost of these accounts is close to zero whereas savings accounts are likely to be drawn down if interest rate rise, forcing the bank to replace them with higher yielding funds.
The bank's risk manager is considering the impact of interest rate changes for a six month planning period.
What is the re-pricing gap?
Related Book For
Introduction to Financial Accounting
ISBN: 978-0133251036
11th edition
Authors: Charles Horngren, Gary Sundem, John Elliott, Donna Philbrick
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