Repricing Gap

| December 15, 2015

FIN 4100

Management of Financial Institutions

Fall 2015

Assignment 1

Due September 16, 2015

You may work with one other person on this assignment.

 

Use the detailed balance sheet data from Local Bank of Commerce (below) to analyze the bank’s re-pricing risk. The analysis should include at least the following:

 

  1. Compute rate sensitive assets, rate sensitive liabilities, gap and cumulative gap for each maturity category required in reporting to the Federal Reserve:
  2. One day.
  3. More than one day to three months.
  4. More than three months to six months.
  5. More than six months to twelve months.
  6. More than one year to five years.
  7. More than five years.

 

  1. Explain the reason you choose to place transaction accounts and savings accounts in the selected maturity category(s) and discuss how and why these liabilities might be treated differently.

 

  1. Identify which maturity categories have reinvestment risk and which have refinancing risk.

 

  1. Discuss re-pricing gap for planning periods of:
  2. thirty days (that is, 1 day to 30 days),
  3. six months (that is, 1 day to 6 months),
  4. one year (that is, 1 day to 1 year),
  5. two years (that is, 1 day to 2 years), and
  6. five years (that is, 1 day to 5 years).

This discussion should consider the effect of parallel shifts in the yield curve (equal shift for all maturity horizons) that are equal for assets and liabilities.

  1. The effect on net interest income for the six-month cumulative gap if interest rates on rate sensitive assets increase by 60 basis points (0.60%) and interest rates on rate sensitive liabilities increase by 50 basis points.
  2. The effect on net interest income for the one-year cumulative gap if interest rates on rate sensitive assets increase by 35 basis points and interest rates on rate sensitive liabilities increase by 75 basis points.
Assets Liabilities      
maturity rate amount Maturity rate amount
Cash 50 Demand deposits 300
Fed funds 5.05% 120 Savings accounts 1.50% 80
T-bills 3 month 5.25% 120 Money Market Deposit Accounts 4.50% 360
T-notes 2 year 6.50% 180 CD’s 3 month 4.20% 180
8 year 7.50% 240 6 month 4.30% 280
Munis 5 year floating 8.2%, 170 1 year 5.00% 325
        2 year 6.50% 475
Consumer loans 6 month 6.00% 200 3 year 6.25% 250
1 year 5.80% 350 4 year 5.50% 280
Car loans 5 year 7.00% 300 5 year 6.00% 150
Commercial and Industrial loans 7 month 5.80% 250 Fed funds 5.00% 275
2 year floating 5.15%;

reset every 6 months

225 Repurchase agreements overnight 5.00% 210
Variable rate mortgages 15 year 5.80%,

6 months

250 Commercial paper 6 month 5.05% 400
15 year 6.10%

reset in 1 year

450 Subordinated notes 3 year 6.55% 250
30 year 6.30%

reset in 3 months

275 Subordinated debt 7 year 7.25% 150
30 year 6.40%

reset in 1 month

365 Total liabilities 3965
Fixed rate mortgages 15 year 7.85% 350
30 year 8.20% 450 Equity 460
Premises and equipment 80
Total assets 4425 Total liabilities and equity 4425

 

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