Financial Institutions 19 22
19. The balance sheet of A. G. Fredwards, a government security dealer is listed below. Market yields are in parentheses, and amounts are in millions.
a) What is the repricing gap if the planning period is 30 days? 3 months? 2 years?
a. Repricing gap using a 30-day planning period = $150 - $340 = -$190 million.
b. Repricing gap using a 3-month planning period = ($150 + $150) - $340 = -$40 million.
c. Reprising gap using a 2-year planning period = ($150 + $150 + $100 + $50) - $340 = $110 million.
b) What is the impact over the next three months on net interest income if interest rates on RSAs increase 50 basic points and on RSLs increase 60 basic points?
a. ΔII = ($150m. + $150m.)(.005) = $1.5m.
b. ΔIE = $340m.(.006) = $2.04m.
c. ΔNII = $1.5m. – ($2.04m.) = -$.54m.
c) What is the impact over the next two years on net interest income if interest rates on RSAs increase 50 basis points and on RSLs increase 75 basis points?
a. ΔII = ($150m. + $150m. + $100 + $50)(.005) = $2.25m.
b. ΔIE = $340m.(.0075) = $2.55m.
c. ΔNII = $2.25m. – ($2.55m.) = -$.30m
d) Explain the difference in your answers to parts (b) and (c). Why is one answer a negative change in NII, while the other is positive?
a. For B, the CGAP is negative which would result in a reduction in NII. For c, the CGAP is positive and rates increased.
20. 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
a. Repricing GAP = $225,000 - $300,000 = -$75,000
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?
a. Net Interest Before = ($225,000(.0635) +$550,000(.0755)) – ($300,000(.0425) + $505,000(.0615)) = $55,812.50
a) What is the repricing gap if the planning period is 30 days? 3 months? 2 years?
a. Repricing gap using a 30-day planning period = $150 - $340 = -$190 million.
b. Repricing gap using a 3-month planning period = ($150 + $150) - $340 = -$40 million.
c. Reprising gap using a 2-year planning period = ($150 + $150 + $100 + $50) - $340 = $110 million.
b) What is the impact over the next three months on net interest income if interest rates on RSAs increase 50 basic points and on RSLs increase 60 basic points?
a. ΔII = ($150m. + $150m.)(.005) = $1.5m.
b. ΔIE = $340m.(.006) = $2.04m.
c. ΔNII = $1.5m. – ($2.04m.) = -$.54m.
c) What is the impact over the next two years on net interest income if interest rates on RSAs increase 50 basis points and on RSLs increase 75 basis points?
a. ΔII = ($150m. + $150m. + $100 + $50)(.005) = $2.25m.
b. ΔIE = $340m.(.0075) = $2.55m.
c. ΔNII = $2.25m. – ($2.55m.) = -$.30m
d) Explain the difference in your answers to parts (b) and (c). Why is one answer a negative change in NII, while the other is positive?
a. For B, the CGAP is negative which would result in a reduction in NII. For c, the CGAP is positive and rates increased.
20. 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
a. Repricing GAP = $225,000 - $300,000 = -$75,000
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?
a. Net Interest Before = ($225,000(.0635) +$550,000(.0755)) – ($300,000(.0425) + $505,000(.0615)) = $55,812.50