Suppose you decide to insulate the bank by attracting and issuing fixed-rate 5-year CDs with a duration of 4.60 years and investing those funds in 90-day T-bills with a duration of 0.25 years.
What is the dollar amount of CDs/T-bills that you must issue/buy to bring ISGAP = 0?
Show the new balance sheet
What is your DGAP of capital?
Explain the pros and cons of this banks action
Amount Duration (5 millions) (years) Wtd Avg Duration % wgt ISA $6.00 5.00 0.00 0.00 2.643% 2.203% 0.000 0.000 41.00 41.00 3.00 8.00 0.40 1.60 4.16 18.062% 1.322% 3.524% 0.072 0.021 0.147 Assets Cash and Cash items Reserves at Fed Securities: Less than 1 year 1-2 years Greater than 2 years Residential mortgages Variable-rate Fixed-rate (30 years) Commercial loans: Less than 1 year 1-2 years Greater than 2 years Building and Equipment Other Assets Total Assets 30.00 15.00 0.40 10.30 13.216% 6.608% 0.053 0.681 30.00 15.00 50.00 50.00 33.00 23.00 12.00 1.00 $227.00 0.90 1.80 15.00 0.00 0.00 22.026% 14.537% 10.132% 5.286% 0.441% 100.000% 0.198 0.262 1.520 0.000 0.000 2.953 136 Amount Duration (5 millions) (years) Wtd Avg Duration % wgt ISL $9.00 8.00 20.00 1.00 0.80 1.00 4.054% 3.604% 9.009% 0.041 0.029 0.090 9 8.00 20 50.00 21.00 Liabilities Checkable deposits Money market demand accounts Savings deposits Certificates of deposit: Variable-rate Less than 1 year 1 - 2 years Greater than 2 years Fed funds borrowed Borrowings: Less than 1 year 1 - 2 years Greater than 2 years Other liabilities Total Liabilities 50.00 21.00 13.00 4.00 15.00 0.90 0.30 1.80 8.00 0.01 22.523% 9.459% % 5.856% 1.802% 6.757% 0.203 0.028 0.105 0.144 0.001 40.00 40.00 9.00 32.00 1.00 $222.00 0.40 1.20 12.00 0.00 18.018% 4.054% 14.414% 0.450% 100.000% 0.072 0.049 1.730 0.000 2.491 $148.00 Equity Capital Total Liabilities and Equity $5.00 $227.00 Interest Sensitive Assets Securties less than 1 year Variable rate residential mortgages 10% Fixed rate Residential mortgages Commerical loans less than 1 year Total Interest sensitve assets 41.00 30.00 1.50 50.00 122.50 Interest Sensitive Liabilities 15% checkable deposits 1.35 Money market demand accounts 8.00 22% savings deposits 4.40 Variable rate certificates of deposits 50.00 Certificates of deposits less than 1 year 21.00 Fed funds borrowed 15.00 Borrowing less than 1 year 40.00 Total Interest sensitive liabilities 139.75 ISGAP -17.25 Amount Duration (5 millions) (years) Wtd Avg Duration % wgt ISA $6.00 5.00 0.00 0.00 2.643% 2.203% 0.000 0.000 41.00 41.00 3.00 8.00 0.40 1.60 4.16 18.062% 1.322% 3.524% 0.072 0.021 0.147 Assets Cash and Cash items Reserves at Fed Securities: Less than 1 year 1-2 years Greater than 2 years Residential mortgages Variable-rate Fixed-rate (30 years) Commercial loans: Less than 1 year 1-2 years Greater than 2 years Building and Equipment Other Assets Total Assets 30.00 15.00 0.40 10.30 13.216% 6.608% 0.053 0.681 30.00 15.00 50.00 50.00 33.00 23.00 12.00 1.00 $227.00 0.90 1.80 15.00 0.00 0.00 22.026% 14.537% 10.132% 5.286% 0.441% 100.000% 0.198 0.262 1.520 0.000 0.000 2.953 136 Amount Duration (5 millions) (years) Wtd Avg Duration % wgt ISL $9.00 8.00 20.00 1.00 0.80 1.00 4.054% 3.604% 9.009% 0.041 0.029 0.090 9 8.00 20 50.00 21.00 Liabilities Checkable deposits Money market demand accounts Savings deposits Certificates of deposit: Variable-rate Less than 1 year 1 - 2 years Greater than 2 years Fed funds borrowed Borrowings: Less than 1 year 1 - 2 years Greater than 2 years Other liabilities Total Liabilities 50.00 21.00 13.00 4.00 15.00 0.90 0.30 1.80 8.00 0.01 22.523% 9.459% % 5.856% 1.802% 6.757% 0.203 0.028 0.105 0.144 0.001 40.00 40.00 9.00 32.00 1.00 $222.00 0.40 1.20 12.00 0.00 18.018% 4.054% 14.414% 0.450% 100.000% 0.072 0.049 1.730 0.000 2.491 $148.00 Equity Capital Total Liabilities and Equity $5.00 $227.00 Interest Sensitive Assets Securties less than 1 year Variable rate residential mortgages 10% Fixed rate Residential mortgages Commerical loans less than 1 year Total Interest sensitve assets 41.00 30.00 1.50 50.00 122.50 Interest Sensitive Liabilities 15% checkable deposits 1.35 Money market demand accounts 8.00 22% savings deposits 4.40 Variable rate certificates of deposits 50.00 Certificates of deposits less than 1 year 21.00 Fed funds borrowed 15.00 Borrowing less than 1 year 40.00 Total Interest sensitive liabilities 139.75 ISGAP -17.25
