The Maturity Gap of the Bank's Assets and Liabilities

919 Words Jan 26th, 2018 4 Pages
What is the maturity gap of the bank (2 marks)
The maturity gap of the bank’s assets and liabilities is $575M.

2. What is the repricing gap if the planning period is 1 year and 2 years? (4 marks)
Prior to any repricing and rate fluctuations, there exists a maturity gap of $575M. Should rates increase by 0.25%, the repricing gap between the 1 and 2 year is $1.55M due to price dropping by $1.15M for 1-year and $0.40 decline for the 2-year. Should rates continue to increase by an additional 0.25%, the gap increases due to a further decline in 1-year by $2.30M and $0.80 for 2-year. If rates declined by 10 basis points, then the 1-year increases by $0.05M and 2-year increases by $0.02M.

3. What is the duration gap of the bank of its assets and liability, that falls within the maturity of 5 years and 10 years? (Please assume current market yield is flat at 6.5%)
(8 marks)
For the bank’s assets reflected on the balance sheet, if the current market yields are flat at 6.5%, the largest impact of the yield effects the 5-year T-note in terms of duration. Duration drastically falls for this security compared to the 5-year personal loan that is repriced yearly in which the duration is positive at 3.20. The 10-year commercial loan repriced every 6 months achieving a duration of 5.17, while the fixed rate 10-year car loan wouldn’t be impacted much.

The banks liabilities duration analysis depicts a smaller adjustment. The duration and weighted duration of the debt…