This sensitivity analysis further extends GAP analysis to include changes in bank earnings due to variations in interest rates and balance sheet structure. Economic Value Perspective With this approach, analysis is carried out to compute the impact of interest rates on banks net worth. Rate sensitive gap is the difference between the book values of rate sensitive assets and liabilities and is calculated for various maturity buckets as well as cumulatively across buckets. Fixed rate instruments may be adversely affected by changes in interest rates throughout their tenor, whereas floating rate instruments may be adversely affected by changes in market interest rates between re-pricing dates. Bank A: $3 mil in RSAs and $2 mil in RSLs. GAP = $1 mil and GAP ratio = 1.5 mil Bank B: $300 mil in RSAs and $200 mil RSLs. GAP equals $100 mill and 1.5 GAP ratio. Clearly, the second bank assumes greater interest rate risk because its net interest income will change more when interest rates change. In the example, the variable rate gaps differ, before and after the deficit, by the liquidity gap, equivalent here to a variable rate liability: variable rate gap before liquidity gap = 40-35 — +5 variable rate gap after liquidity gap — +5 - 40 — -35 In general, the variable rate gap post funding is The interest rate sensitivity gap compares the amount of assets and liabilities in each time period in the interest rate sensitivity gap table. This comparison gives an approximate view of the interest rate risk of the balance sheet being analyzed.

Question: Calculating And Comparing Gap, Duration, And Risk Management Alternatives CONCEPTS IN THIS CASE: Interest-rate Risk Duration Gap Analysis  

GAP Analysis A static measure of risk that is commonly associated with net interest income (margin) targeting Earnings Sensitivity Analysis Earnings sensitivity analysis extends GAP analysis by focusing on changes in bank earnings due to changes in interest rates and balance sheet composition Two Types of Interest Rate Risk Spread Risk (reinvestment/refinancing risk) Changes in interest rates will change the bank’s cost of funds as well as the return on their invested assets. The interest rate sensitivity gap compares the amount of assets and liabilities in each time period in the interest rate sensitivity gap table. This comparison gives an approximate view of the interest rate risk of the balance sheet being analyzed. Rate sensitive gap is the difference between the book values of rate sensitive assets and liabilities and is calculated for various maturity buckets as well as cumulatively across buckets. Fixed rate instruments may be adversely affected by changes in interest rates throughout their tenor, whereas floating rate instruments may be adversely affected by changes in market interest rates between re-pricing dates.

With the advance of market-oriented interest rate, the risk of commercial banks in our country is increasing day by day, 1) Interest Rate Sensitivity Gap Analysis.

Bank A: $3 mil in RSAs and $2 mil in RSLs. GAP = $1 mil and GAP ratio = 1.5 mil Bank B: $300 mil in RSAs and $200 mil RSLs. GAP equals $100 mill and 1.5 GAP ratio. Clearly, the second bank assumes greater interest rate risk because its net interest income will change more when interest rates change. In the example, the variable rate gaps differ, before and after the deficit, by the liquidity gap, equivalent here to a variable rate liability: variable rate gap before liquidity gap = 40-35 — +5 variable rate gap after liquidity gap — +5 - 40 — -35 In general, the variable rate gap post funding is The interest rate sensitivity gap compares the amount of assets and liabilities in each time period in the interest rate sensitivity gap table. This comparison gives an approximate view of the interest rate risk of the balance sheet being analyzed. DEFINITION of Maturity Gap. Maturity gap is a measurement of interest rate risk for risk-sensitive assets and liabilities. Using the maturity gap model, the potential changes in the net interest income variable can be measured.

among them being liquidity risk and interest rate risk. analyzed for different maturity buckets. The rate sensitive gap for each maturity bucket is used to assess.

This sensitivity analysis further extends GAP analysis to include changes in bank earnings due to variations in interest rates and balance sheet structure. Economic Value Perspective With this approach, analysis is carried out to compute the impact of interest rates on banks net worth. Rate sensitive gap is the difference between the book values of rate sensitive assets and liabilities and is calculated for various maturity buckets as well as cumulatively across buckets. Fixed rate instruments may be adversely affected by changes in interest rates throughout their tenor, whereas floating rate instruments may be adversely affected by changes in market interest rates between re-pricing dates. Bank A: $3 mil in RSAs and $2 mil in RSLs. GAP = $1 mil and GAP ratio = 1.5 mil Bank B: $300 mil in RSAs and $200 mil RSLs. GAP equals $100 mill and 1.5 GAP ratio. Clearly, the second bank assumes greater interest rate risk because its net interest income will change more when interest rates change. In the example, the variable rate gaps differ, before and after the deficit, by the liquidity gap, equivalent here to a variable rate liability: variable rate gap before liquidity gap = 40-35 — +5 variable rate gap after liquidity gap — +5 - 40 — -35 In general, the variable rate gap post funding is

and management of bank interest risk. They are based on already made an income gap or duration gap analysis. The simulation models analyze interest rate  

Rate sensitive gap is the difference between the book values of rate sensitive assets and liabilities and is calculated for various maturity buckets as well as cumulatively across buckets. Fixed rate instruments may be adversely affected by changes in interest rates throughout their tenor, whereas floating rate instruments may be adversely affected by changes in market interest rates between re-pricing dates. Bank A: $3 mil in RSAs and $2 mil in RSLs. GAP = $1 mil and GAP ratio = 1.5 mil Bank B: $300 mil in RSAs and $200 mil RSLs. GAP equals $100 mill and 1.5 GAP ratio. Clearly, the second bank assumes greater interest rate risk because its net interest income will change more when interest rates change. In the example, the variable rate gaps differ, before and after the deficit, by the liquidity gap, equivalent here to a variable rate liability: variable rate gap before liquidity gap = 40-35 — +5 variable rate gap after liquidity gap — +5 - 40 — -35 In general, the variable rate gap post funding is The interest rate sensitivity gap compares the amount of assets and liabilities in each time period in the interest rate sensitivity gap table. This comparison gives an approximate view of the interest rate risk of the balance sheet being analyzed. DEFINITION of Maturity Gap. Maturity gap is a measurement of interest rate risk for risk-sensitive assets and liabilities. Using the maturity gap model, the potential changes in the net interest income variable can be measured. Gap analysis distributes interest rate-sensitive assets, liabilities, and off-balance sheet positions into a certain number of predefined time bands, according to their maturity (fixed rate) or the time remaining for their next repricing, which is based on a floating rate. GAP analysis for assets-liabilities management of State Bank of India. 124 4.3 GAP analysis – assets and liabilities management for Bank of Baroda Positive relative gap, Interest sensitivity ratio is greater than 1 and vice – versa.

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