If a bank has more rate-sensitive liabilities than assets,then an increase in interest rates will reduce bank profits.

Question

Quizplus · Accepted Answer

This statement is true. If a bank has more rate-sensitive liabilities (such as deposits that can be withdrawn or repriced at a higher rate) than assets (such as loans or securities that have fixed interest rates), an increase in interest rates will lead to an increase in the cost of liabilities while the yield on assets remains unchanged, resulting in a reduction in bank profits.

If a Bank Has More Rate-Sensitive Liabilities Than Assets,then an Increase