The bank balance sheet below lists the categories of assets and liabilities, alo
ID: 2821163 • Letter: T
Question
The bank balance sheet below lists the categories of assets and liabilities, along with the total amount of each
category, and the amount in each category that is "interest rate sensitive" or repriced within one year.
Calculate the existing Dollar Gap for the bank. Next, calculate the effect (change) on this bank's Net Interest
Income if interest rates fall or decrease by 1 percentage point or 100 bp. "%" denotes either the current
interest rate earned earned or paid on the designated asset or liability category. RSA and RSL denote interest
rate sensitive assets and liabilities, respectively, that are repriced within one year. Note, you do not have to
include either the existing or new level of Net Interest Income, as I'm only asking for the change in Net
Interest Income. Please show your work in order to receive credit.
Assets
Amount
%
RSA
Liabilities and Equity
Amount
%
RSL
Cash
80
0.0%
Non-interest deposits
150
0.0%
Securities
300
5.0%
150
NOW checking
150
2.0%
Loans, net
570
8.0%
171
MMDA
300
4.0%
300
Fed funds sold
0
CDs
170
5.0%
68
Non-earning assets
50
Fed Funds purchased
150
3.0%
150
$1,000
Equity
80
$1,000
Assets
Amount
%
RSA
Liabilities and Equity
Amount
%
RSL
Cash
80
0.0%
Non-interest deposits
150
0.0%
Securities
300
5.0%
150
NOW checking
150
2.0%
Loans, net
570
8.0%
171
MMDA
300
4.0%
300
Fed funds sold
0
CDs
170
5.0%
68
Non-earning assets
50
Fed Funds purchased
150
3.0%
150
$1,000
Equity
80
$1,000
Explanation / Answer
Dollar GAP = RSA- RSL
= (150+171) - (300+68+150)
= 321 - 518
= - 197
Change in interest income due to increase in rates by 1% = -197*1% = - $1.97
This implies reduction in interest income by $1.97 due to increase in rates.
Change in interest income due to decrease in rates by 1% = -197*-1% = $1.97
This implies increase in interest income by $1.97 due to decrease in rates.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.