Banking Practice Showdown 2025 – Vault into Your Future Success!

Cumulative GAP analysis directly measures a bank's net interest sensitivity by tracking the difference between the interest-sensitive assets and interest-sensitive liabilities over various time periods. This analysis is crucial for understanding the bank's exposure to interest rate changes. It aggregates the interest rate sensitivity over specified time frames, allowing the bank to see how much its net interest income may fluctuate when interest rates change, thus providing a clearer picture of its overall interest rate risk exposure.

The cumulative approach differentiates itself from other types of analysis by not just looking at short-term impacts but also considering how interest rate changes can affect the bank's financial position in the short and long terms. It helps banks manage risks by assessing potential changes in earnings based on the timing and magnitude of interest rate movements, enabling them to make informed strategic decisions regarding their asset and liability management strategies.