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 0.50 percentage points or 50 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	100	0.0%
Securities	270	5.5%	108		NOW checking	170	2.0%
Loans, net	600	7.5%	240		MMDA	330	4.0%	330
Fed funds sold	0				CDs	160	5.0%	80
Non-earning assets	50				Fed Funds purchased	150	3.0%	150
	$1,000				Equity	90
						$1,000

Answer 1

ANSWER

Dollar GAP = RSA- RSL

= (108+240) - (300+80+150)

= 348- 530

= - 182

Change in interest income due to increase in rates by 0.50% = -182*0.50% = - $ 0.91

This implies reduction in interest income by $0.91 due to increase in rates.

Change in interest income due to decrease in rates by 0.50% = -182*-0.50% = $0.91

This implies increase in interest income by $0.91 due to decrease in rates.

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