If a bank has a positive funding gap, with a larger amount of rate sensitive assets than rate sensitive liabilities for a given time period, such as year, the bank has the risk of a fall in its NIM, if rates go up.

Question

Quizplus · Accepted Answer

A positive funding gap means the bank has more rate-sensitive assets than liabilities, so if rates go up, the bank's net interest margin (NIM) would likely increase, not decrease, as the income from assets would rise more than the cost of liabilities.

If a Bank Has a Positive Funding Gap, with a Larger