BANC ONE

Bank One: Assets and Liabilities Management



Bank One: Assets and Liabilities Management

Does a Liability sensitive bank make profits when interest rate falls? Explain your answer?

Yes liability sensitive banks make profits when interest rate fall because an entity is categorized to be liability sensitive when the impact of change in assets is smaller as compared to change in liabilities due to change in existing interest rates. This happens when change in timing and amount of interest rate for an asset causes interest income to change by greater proportion as compared to interest expense. When prevailing interest rates changes the effects ...