The Principles of Banking by Moorad Choudhry

Author:Moorad Choudhry [Choudhry, Moorad]
Language: eng
Format: epub, pdf
Published: 2012-05-10T16:00:00+00:00

Limits on a banking book can be set in terms of gap limits. For example, a bank may set a 6-month gap limit of £10 million. The net position of assets and maturities expiring in six months' time could then not exceed £10 million. An example of a gap limit report is shown at Figure 7.2, with the actual net gap positions shown against the gap limits for each maturity. Again this is an actual limit report from a UK banking institution.

Figure 7.2 Gap limit report.

The maturity gap can be charted to provide an illustration of net exposure, and an example is shown in Figure 7.3, from yet another UK banking institution. In some firms' reports both the assets and the liabilities are shown for each maturity point, but in our example only the net position is shown. This net position is the gap exposure for that maturity point. A second example, used by the overseas subsidiary of a Middle Eastern commercial bank, which has no funding lines in the inter-bank market and so does not run short positions, is shown in Figure 7.4, while the gap report for a UK high-street bank is shown in Figure 7.5. Note the large short gap under the maturity labelled “non-int”; this stands for non-interest-bearing liabilities and represents the balance of current accounts (cheque or “checking” accounts), which are funds that attract no interest and are in theory very short-dated (because they are demand deposits, so may be called at instant notice).

Figure 7.3 Gap maturity profile in graphical form.

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