A bank that has made floating rate loans funded by longer maturity deposits is at risk from falling interest rates.

Question

Quizplus · Accepted Answer

If interest rates fall, the bank's cost of funding its longer maturity deposits remains constant, but the interest income it receives from its floating rate loans decreases. This results in a decrease in the bank's net interest income and profitability, making it more vulnerable to financial difficulties.

A Bank That Has Made Floating Rate Loans Funded by Longer