If the spread between rate-sensitive assets and rate-sensitive liabilities increases for a bank, future changes in interest rates will lead to an increase in net interest income.

Question

Quizplus · Accepted Answer

If the spread between rate-sensitive assets and rate-sensitive liabilities increases, it means that the bank's assets are more sensitive to interest rate changes than its liabilities. This means that when interest rates rise, the bank can earn a higher yield on its assets while paying out relatively lower interest on its liabilities, resulting in an increase in net interest income.

If the Spread Between Rate-Sensitive Assets and Rate-Sensitive Liabilities Increases