Since most banks have positive gaps and negative duration gaps,an increase in market interest rates will

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Quizplus · Accepted Answer

An increase in market interest rates typically decreases the present value of a bank's assets more than its liabilities if it has a positive gap (assets repricing faster than liabilities) and a negative duration gap (assets are more sensitive to interest rate changes than liabilities). This leads to a decrease in both bank profits (due to higher interest expenses not being fully offset by interest income) and bank capital (as the value of assets declines relative to liabilities).

Since Most Banks Have Positive Gaps and Negative Duration Gaps,an