Use of the Repricing Model

Use of the Repricing Model - Model 3 Even if the dollar...

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Use of the Repricing Model 1 Commercial Banks pay close attention to the gap between RSAs and RSLs and attempt to close it. This model continues to be used by Community Banks. The model allows banks to forecast changes in profitability for a given change in interest rates. Modeling allow banks to structure their balance
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Weakness of the Repricing Model 2 Ignores market value effects. The model is based on book values. The market value is impacted anytime rates change (PV of future cash flows). It is over-aggregative  next slide. Distribution of assets and liabilities within buckets is not considered; particularly large buckets.
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Over-Aggregation in Repricing
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Unformatted text preview: Model 3 Even if the dollar amounts are equal, the maturities might not be, so there could be mismatching within buckets. Here, there is a GAP of $50 million in the shorter maturities (3 and 4 months) in the 3-6 month bucket. However, there is a -$50 million GAP in the longer maturities (5 and 6 months) within the same bucket. It appears there is no gap. Current RSLs 4 FDIC Graph Book Interest Rate Risk Part I 5 We will not cover the following information, which is detailed in Appendix 8A: Term structure of interest rate risk. Theories of the term structure of interest rates....
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This note was uploaded on 01/26/2012 for the course FIN 4620 taught by Professor Patriciarobertson during the Spring '12 term at Kennesaw.

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Use of the Repricing Model - Model 3 Even if the dollar...

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