ch08MANAGING INTEREST RATE RISK GAP AND EARNINGS SENSITIVITY 银行相关管理学 英文版本.pptVIP

Link between GAP and net interest margin Some ALM programs focus on the GAP or GAP ratio when evaluating interest rate risk: GAP Ratio = RSAs / RSLs When the GAP is positive, the GAP ratio is greater than one. A negative GAP, in turn, is consistent with a GAP ratio less than one. GAP and potential variability in earnings Neither the GAP nor GAP ratio provide direct information on the potential variability in earnings when rates change. The GAP ratio ignores size. Example: Consider two banks that have $500 million in total assets. The first bank has $3 million in RSAs and $2 million in RSLs, its GAP = $1 million and its GAP ratio = 1.5 million. The second bank has $300 million in RSAs and $200 million in RSLs. Its GAP equals $100 million, yet it reports the same 1.5 GAP ratio. Clearly, the second bank assumes greater interest rate risk because its net interest income will change more when interest rates change. Target NIM and GAP A better risk measure relates the absolute value of a bank’s GAP to earning assets. The greater is this ratio, the greater the interest rate risk The ratio of GAP to earning assets has the additional advantage in that it can be directly linked to variations in NIM. In particular, management can determine a target value for GAP in light of specific risk objectives stated terms of a bank’s target NIM: Example: Consider a bank with $50 million in earning assets that expects to generate a 5% NIM. The bank will risk changes in NIM equal to plus or minus 20% during the year, NIM should fall between 4 and 6%. Management expects interest rates to vary up to 4 percent during the upcoming year The bank’s ratio of its 1-year cumulative GAP (absolute value) to earning assets should not exceed 25 percent. Target GAP/Earning assets (.20)(0.05) / 0.04 = 0.25 Management’s willingness to allow only a 20 percent variation in NIM sets limits on the GAP which would be allowed to vary from $12.5 million to $12.5 million, based on $50 million i