Interest rate risk Example: $10,000 Car loan 4 year Car loan at 8.5% 1 year CD at 4.56 Spread 4.0% But for How long? Funding GAP GAP $RSA-$RSL, where $RSA =amount of assets which will mature or reprice in a give period of time. In this example: GAP1y=$0.00-$10,000=-$10,000 This is a negative GAP. 行贺影小号
Interest rate risk Interest rate risk Example: $10,000 Car loan 4 year Car loan at 8.5% 1 year CD at 4.5% Spread 4.0% But for How long? Funding GAP GAP = $RSA - $RSL, where $RSA = $ amount of assets which will mature or reprice in a give period of time. In this example: GAP1y = $0.00 - $10,000 = - $10,000 This is a negative GAP
Funding GAP ▣ethod Group assets and liabilities into time "buckets"according to when they mature or are expected to re-price Calculate GAP for each time bucket ■ Funding GAP =Value RSA:-Value or RSL where t time bucket;e.g.,0-3 months 的资5+号
Funding GAP Funding GAP Method Group assets and liabilities into time "buckets ” according to when they mature or are expected to re-price Calculate GAP for each time bucket Funding GAP t = $ Value RSA t - $ Value or RSL t where t = time bucket; e.g., 0-3 months
Traditional static GAP analysis 1 Management develops an interest rate forecast 2. Management selects a series of "time buckets"(intervals) for determining when assets and liabilities are rate= sensitive 3. Group assets and liabilities into time "buckets"according to when they mature or re-price The effects of any off-balance sheet positions(swaps, futures,etc.are added to the balance sheet position Calculate GAP for each time bucket Funding GAP =Value RSA:-$Value or RSLt where t time bucket;e.g.,0-3 months 4. Management forecasts NII given the interest rate environment 猫制卧价贸易大孝
Traditional static GAP Traditional static GAP analysis analysis 1. Management develops an interest rate forecast 2. Management selects a series of “time buckets ” (intervals) for determining when assets and liabilities are ratesensitive 3. Group assets and liabilities into time "buckets" according to when they mature or re-price The effects of any off-balance sheet positions (swaps, futures, etc.) are added to the balance sheet position Calculate GAP for each time bucket Funding GAP t = $ Value RSA t - $ Value or RSL t where t = time bucket; e.g., 0-3 months 4. Management forecasts NII given the interest rate environment
Rate sensitive assets and liabilities ▣They include: maturing instruments, ■ floating and variable rate instruments,and ■ any full or partial principal payments. A bank's GAP is defined as the difference between a bank's rate sensitive assets and rate sensitive liabilities. It is a balance sheet figure measured in dollars for U.S.banks over a specific period of time. 制酥所贸易大考
Rate sensitive assets and Rate sensitive assets and liabilities liabilities They include: maturing instruments, floating and variable rate instruments, and any full or partial principal payments. A bank's GAP is defined as the difference between a bank's rate sensitive assets and rate sensitive liabilities. It is a balance sheet figure measured in dollars for U.S. banks over a specific period of time
What determines rate sensitivity? 目 In general,an asset or liability is normally classified as rate-sensitive with a time frame if: 1.It matures 2. It represents and interim,or partial,principal payment 3.The interest rate applied to outstanding principal changes contractually during the interval 4. The outstanding principal can be repriced when some base rate of index changes and management expects the base rate index to change during the interval 碰制酥价贸易大考
What determines rate What determines rate sensitivity? sensitivity? In general, an asset or liability is normally classified as rate-sensitive with a time frame if: 1. It matures 2. It represents and interim, or partial, principal payment 3. The interest rate applied to outstanding principal changes contractually during the interval 4. The outstanding principal can be repriced when some base rate of index changes and management expects the base rate / index to change during the interval