Banking Practice Showdown 2025 – Vault into Your Future Success!

Question: 1 / 400

What is the expected effect on net interest income if rate-sensitive liabilities exceed rate-sensitive assets?

Net interest income will definitely rise.

Net interest income will definitely fall.

When rate-sensitive liabilities exceed rate-sensitive assets, the expected effect on net interest income is that it will likely fall. This occurs because rate-sensitive liabilities, such as deposits or other borrowed funds, are more influenced by changes in interest rates than rate-sensitive assets, like loans or securities.

If interest rates rise, the bank will need to pay higher interest on its liabilities, while the income from assets may not increase at the same rate or might even remain fixed for a time. Consequently, the expense associated with the higher interest rates outweighs the income generated from the bank's assets.

Even if interest rates were to decrease, the bank might still be locked into paying higher rates on certain liabilities, which can lead to a negative impact on net interest income as well. Therefore, this mismatch suggests a negative trend for net interest income when rate-sensitive liabilities exceed rate-sensitive assets.

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Net interest income will be unchanged.

Net interest income will increase moderately.

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