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Essay / Research Paper Abstract
This 11 page paper answers specific questions asked by the student regarding risks faced by banks. The first questions look at the net interest margin (NIM) and the influences on that margin. The paper loos at the use of GAP measurements and how changes in interest rates and other factors, such as asset base, may impact in the GAP. The bibliography cites 4 sources.
Page Count:
11 pages (~225 words per page)
File: TS14_TEbankrisk.rtf
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Unformatted sample text from the term paper:
the risk report. This paper shows the student how to answer these questions for themselves by using examples. As ALCO reports are not available on line, where possible figures
used are based on the Chittenden Corporation. This is a public listed bank, with stock being traded since 1974 and has grown though a strategy of acquisition. Today there are
more than 125 branches stretching from Vermont to the Canadian boarder. Many of the acquisition still trade under their pre-acquisition name. Where figures are not available the process is
outlined for the benefit of the student and assumptions are made regarding industry performance for the purpose of the question. In this way the student is able to apply
the paper to their own bank. Question 1 a. The average yield on the earning assets is the return created from the loans and securities that the bank transforms from
liabilities into assets. In 2004 the net interest that was received from these was $225.5. We can calculate the yield in the following way 2004 2003 Net interest received
($millions) 225.5 218.1 Asset ($millions) 5,356.29 5,293.69 Yield (%) 4.21 4.12 If we look at this there is a reason behind the increase, the Federal Reserve base rates had increased
during this time by 1.25% which had a knock on effect as the bank raised its won interest rate and as such gained more income from the loans that were
made. There is also an industry trend of less defaults on loans which also increased the net income as less defaults occurred across the board. b. We can also look
at the average cost of funds, these may be deposits by investors and the investors need t be paid interest, alternatively it may be in funds borrowed for other sources
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