Use the balance sheet for San Diego Bank in Exhibit A (given below) and the industry norms in Exhibit B (given below) to answer the following questions:

a. Estimate the gap and determine how San Diego Bank would be affected by an increase in interest rates over time.

b. Assess San Diego Bank's credit risk. Does it appear high or low relative to the industry? Would San Diego Bank perform better or worse than other banks during a recession?

c. For any type of bank risk that appears to be higher than the industry, explain how the balance sheet could be restructured to reduce the risk.

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Exhibit A: Balance Sheet for San Diego Bank (2. Millions of Dollars) Liabilities and Capital Assets $800 $800 Required Demand deposits reserves $2,500 Commercial NOW accounts loans Floating-rate None $7,000 MMDAS $6,000 Fixed-rate $7,000 Total CDs $9,000 $5,000 Short-tem Consumerloans From 1 to 5 years None Total $9,000 Mortgages Floating-rate None $2,000 $500 Fixed-rate Federal funds $2,000 Total $400 Long-tem bonds Treasury securities Capital $800 Short-tem None $1,000 Long-tem $1,000 Total Long-tem corporate securities None High-rated Moderate-rated $2,000 $2,000 Total Long-tem municipal securities High-rated Moderate-rated $1,700 None Total $1,700 Fixed assets $500 TOTAL LIABILITIES TOTAL ASSETS $20,000 AND CAPITAL $20,000