BK4 - MANA130107 Bank Management 1 Lecture FOUR...

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Unformatted text preview: MANA130107 Bank Management 1 Lecture FOUR Assets-Liability Management (chap 7-8 ) Topics in Commercial Bank Management MANA130107 Bank Management 2 Assets-Liability Management ¡ Topics covered in this lecture ¢ Interest-Sensitive Gap Management ¢ Duration Gap Management ¢ Derivatives in Assets-Liability Management MANA130107 Bank Management 3 Interest-Sensitive Gap Management ¡ Interest-sensitive gap management ¢ Analysis and match the volume of repriceable assets and liabilities during the same time period ¢ Dollar Interest-Sensitive Gap = Interest-Sensitive Assets – Interest Sensitive Liabilities ¡ Asset-Sensitive Banks ¢ Positive dollar interest-sensitive gap ¢ Benefit from interest increase and suffer from falling interest rate ¡ Liability Sensitive Banks ¢ Negative dollar interest-sensitive gap ¢ Benefit from interest decrease and suffer from rising interest rate MANA130107 Bank Management 4 ¡ Alternative interest-sensitive (IS) gap measures are ¢ Relative Interest-Sensitive Gap ¢ Interest-Sensitive Ratio ¡ Asset-Sensitive Banks ¢ Positive Relative IS Gap ¢ Interest Sensitivity Ratio >1 ¡ Liability Sensitive Banks ¢ Negative Relative IS Gap ¢ Interest Sensitivity Ratio <1 Interest-Sensitive Gap Measures Size Bank Gap IS Dollar = Gap IS relative s Liabilitie Sensitive Interest Assets Sensitive Interest Ratio y Sensitivit Interest = MANA130107 Bank Management 5 Gap Positions & Interest Rate Risk ¡ Asset-Sensitive Bank ¢ Interest Rates Rise => NIM Rises ¢ Interest Rates Fall => NIM Falls ¡ Liability-Sensitive Bank ¢ Interest Rates Rise => NIM Falls ¢ Interest Rates Fall => NIM Rises ¡ Banks with Zero Interest-Sensitive Gap ¢ A zero gap may not completely eliminate all interest rate risk, as IR may not perfectly related with market IR ¢ IR on loans lag market IR and revenues grow/fall slower than costs MANA130107 Bank Management 6 Decisions Regarding IS Gap ¡ The time period over which NIM is to be managed and the maturity buckets ¡ A target NIM level ¡ To increase NIM: ¢ Forecast IR correctly ¢ Reallocate assets and liabilities to Increase spread ¡ Determine the IS gap: the volume of Interest-Sensitive Assets and Liabilities ¡ NIM Influenced By: ¢ Changes in the Spread Between Assets and Liabilities ¢ Changes in the Mix of Assets and Liabilities ¢ Changes in Interest Rates Up or Down ¢ Changes in the Volume of Interest-Sensitive Assets and Liabilities MANA130107 Bank Management 7 The Maturity Bucket Method ¡ Computer-Based Techniques ¡ Cumulative Gap: overall measure of interest rate risk The Total Difference in Dollars Between Those Bank Assets and Liabilities Which Can be Repriced over a Designated Time Period Coming Next Next More Than Week 30 Days 31-90 Days 90 Days Loans $210.00 $100.00 $175.00 $225.00 Securities $30.00 $20.00 $30.00 $25.00 Interest Sensitive Assets $240.00 $120.00 $205.00 $250.00 Transaction deposits $250.00 $0.00 $0.00 $0.00 Time Accounts $100.00 $84.00 $196.00 $100.00 Money market borrowings...
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BK4 - MANA130107 Bank Management 1 Lecture FOUR...

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