A liability-sensitive bank will experience an increase in its net interest margin if interest rates rise.

Question

Quizplus · Accepted Answer

A liability-sensitive bank has more liabilities (e.g., deposits) that reprice or mature in the short term compared to assets (e.g., loans). Therefore, if interest rates rise, the cost of its liabilities will increase faster than the income from its assets, potentially decreasing its net interest margin.

A Liability-Sensitive Bank Will Experience an Increase in Its Net