Suppose M&T Bank has the following assets and liabilities to manage (shown in Table 2). The current interest rate on the rate-sensitive asset and liability is 1% per annum. Assume that 15% of the bonds asset, consumer loans asset and commercial loans asset, 20% of the demand deposits liability and 18% of the saving accounts liability are interest rate sensitive.

Table 2. M&T Bank Assets and Liabilities

Asset	Value ($ million)	Duration (in years)	Liability	Value ($ million)	Duration (in years)
Bonds	450	4	Demand Deposits	570	3
Consumer Loans	500	6	Saving Accounts	420	2
Commercial Loans	660	8	Equity
Reserves and cash	300	0	Bank Capital	920	0

REQUIRED:

1. Calculate the duration gap for M&T Bank.

(5 marks)

2. Based on gap analysis, calculate the expected change in income if interest rate decreases by 100 basis points.

(3 marks)

3. Critically evaluate the impact of covid-19 on M&T banks liquidity risk management and discuss potential solutions to these challenges.