1. Third Internet Bank of America, an online-only bank, finances 65% of its assets from savings deposits that now pay 3.5%. Typical Community Bank finances 65% of its assets from small-denomination savings accounts that now pay 0.4%. If market interest rates suddenly fall by 100 basis points, which bank will likely experience the bigger decline in interest expense over the next 12-months?

2. Suppose 1-year Treasury Bills yield 3% and 10-year Treasury Notes yield 4%. If the yield curve flattens, so 1-year Bills now yield 3.5% and 10-year Notes now yield 3.5%, which bank should experience a gradual decline in NII? Assume each bank has a typical deposit maturity profile.

Bank Z, with 85% of its lending in fixed-rate residential mortgages

Bank X, with 85% of its lending in variable-rate, prime-based business loans