Banc One Case

Like the table shown above, the bank was said to be asset sensitive (i.e., for a given year, there are more assets than liabilities subject to immediate repricing as market rates change, and the earning position would be positive in a rising interest rate environment) if earnings sensitivity was positive, whereas the bank was liability sensitive (i.e., for a given year, there are more liabilities than assets subject to immediate repricing as market rates change, and the earning position would be positive in a declining interest rate environment) if earning sensitivity turned out to be negative. For 0% earning sensitivity, no matter how interest rate shift, no effect on their earning.

Most banks’ basic portfolio (exclude balancing asset) was
Rather, they just simply avoid investing in longer-maturity securities so that there is no concerns for undue risk and negative impact on its liquidity
This tactical decision was made as a result of oil price shock during 1970s, making the market under the extremely volatile condition. Maturity gap was used to analyze different between assets and liabilities in maturity and adjusted for the repricing interval. The basic mechanism behind this required Banc One to classify its assets and liabilities into differenct categories according to their relative repricing-adjusted time to maturity. Then, the maturity gap can be defined as the difference between assets dollar value and liabilities dollar value for each category. Therefore, if the bank had decided to use long-term fixed rate deposits to support its short-term floating-rate loans, this would result a positive maturity gap for the shorter period category and a negative maturity gap for the long term category. Besides, maturity gaps were also used to forecast bank’s net interest margin. Unfortunately, each maturity gap must be collected from the affiliates and then analyzed together, thus it was an extremely time consuming process to implement the