Question

Problem 6 (10%): The balance sheet of XYZ Bank appears below. All figures in millions of U.S. dollars. Assets $150 1 Equity capital (fixed) Liabilities Short-term consumer loans (one-year maturity) Long-term consumer loans 1252 1303 1354 Three-month Treasury bills Six-month Treasury notes Three-year Treasury bond 1705 Demand deposits (two-year maturity) Passbook savings Three-month CDs Three-month bankers acceptances Six-month commercial paper One-year time deposits 10-year, fixed- rate mortgages 1206 30-year, 1407 floating-rate mortgages (rate adjusted every nine months) Two-year time deposits $970 a. What is the one-year rate-sensitive assets? b. What is the one-year rate-sensitive liabilities? c. What is the cumulative one-year repricing gap (CGAP) for the bank? d. What is the gap ratio? e. Suppose that interest rates rise by 2 percent on both RSAs and RSLs. The expected annual change in net interest income of the bank is? Briefly discuss your results.

Answer 1

a. One - year rate - sensitive assets = Short term consumer loans (one year maturity) + three month treasury bills + six month treasury notes + 30 year floating rate mortgages ( rate adjusted every nine months) = $150 + $130 + $135 + $140 = $555 millions

b. One - year rate - sensitive liabilities = Three month CDs + three month bankers acceptances + six month commercial paper + one year time deposits = $140 + $120 + $160 + $120 = $540 millions

c. Cumulative one year repricing gap for the bank = One - year rate - sensitive assets - One - year rate - sensitive liabilities = $555 million - $540 million = $15 million

d. Gap ratio = One - year rate - sensitive assets/ One - year rate - sensitive liabilities = $555 millions / $540 millions = 1.03

e. Expected Annual Change in net interest income of the bank = Cumulative one year repricing gap for the bank * 2% = $15 million * 2% = $0.3 million = $300,000