BANC ONE CORPORATION

Banc One Corporation



Banc One Corporation

Asset and Liability Management

Introduction

This study intends to extenuate the case study of Banc One Corporation and the problems which it was encountering with. The Banc One Corporation was based in Columbus, Ohio which is epitomized as the regional banking. It was the largest bank in the entire Ohio and was amongst the eighth largest throughout the country. In 1993, the Banc Corporation encountered with the significant drop in the stock price of around twenty percent which was about $ 45 at the beginning of the year and came to $ 35 at the end of the year. This sharp decline significantly wobbled up John McCoy, the CEO and the chairman of the company. However, the company faced a great set back due to the fall in the stock price. In this paper we aim to provide the solutions to the problems of Banc One Corporation pertinent to the asset and liability management.

Discussion

The Banc One used the Interest Rate Swaps primarily as the derivate to manage its financial instruments, interest rate sensitivity and interest rate exposure. However, this synthetic instrument helped the company to get high yields in exchange for taking on prepayment risk. In short, it substantially reduced the capital adequacy requirements for which Banc One Corporation entered into the Amortized Interest Rate Swap. Using the Swaps has both advantages and disadvantages as it is considered as the most useful financial tool to limit the future risks. On the contrary, it is also considered as the zero sum game where one party gains through the swap while the other party has to lose some money (Smith, 2000). While, if in case, Banc One wanted to manage its interest rate exposure without Swaps then it could use Caps to protect the company from unexpected ...