A bank has the following balance sheet:

Suppose interest rates rise such that the average yield on rate-sensitive assets increases by 45 basis points and the average yield on rate-sensitive liabilities increases by 35 basis points.

a. Calculate the bank’s repricing GAP.

b. Assuming the bank does not change the composition of its balance sheet, calculate the net interest income for the bank before and after the interest rate changes. What is the resulting change in net interest income?

c. Explain how the CGAP and spread effects influenced this increase in net interest income.

Transcribed Image Text:

Avg. Rate 6.35% Avg. Rate 4.25% 6.15 Liabilities/Equity Assets Rate sensitive $225,000 Rate sensitive Fixed rate $300,000 Fixed rate 7.55 550,000 505,000 120.000 Nonearning Total Nonpaying Total $895,000 $895,000