If the interest rate spread between rate sensitive-assets and rate sensitive liabilities increases for a bank, future increases in interest rates will lead to an increase in net interest income.

Question

Quizplus · Accepted Answer

When the interest rate spread between rate sensitive-assets (e.g. loans) and rate sensitive liabilities (e.g. deposits) increases for a bank, it means that the bank's net interest margin (NIM) is widening. This means that the bank is earning more from its interest-earning assets than it is paying out on its interest-bearing liabilities. As a result, if interest rates increase in the future, the bank will be able to earn even more on its assets relative to its liabilities, leading to an increase in net interest income.

If the Interest Rate Spread Between Rate Sensitive-Assets and Rate