If a bank wishes to have a positive balance sheet repricing gap and a negative balance sheet duration gap,then the bank should predominantly have short-term rate-sensitive assets funded by long-term fixed-rate liabilities.

Question

Quizplus · Accepted Answer

A positive balance sheet repricing gap means that the bank's rate-sensitive assets will reprice faster than its rate-sensitive liabilities, resulting in a potential increase in net interest income if interest rates rise. A negative balance sheet duration gap means that the bank's assets have shorter maturities than its liabilities, which could result in a potential decrease in net interest income if interest rates rise. To achieve both a positive balance sheet repricing gap and a negative balance sheet duration gap, the bank should predominantly have short-term rate-sensitive assets funded by long-term fixed-rate liabilities.

If a Bank Wishes to Have a Positive Balance Sheet