Interest Rate Risk and the Optimal Gap for Commercial Banks: An Empirical Study

Jill L T Wetmore and John R Brick

The Financial Review, 1990, vol. 25, issue 4, 539-57

Abstract: The optimal gap of a depository institution is derived using a market value optimization model. The gap is estimated using portfolios of returns on rate-sensitive assets and liabilities and is found to be not significantly different from zero. The estimate is compared to the average gap position of a sample of banks. It is found that the average gap position of a sample of banks is "too positive." This suggests that banks are not showing risk minimization behavior in the positioning of the gap. Copyright 1990 by MIT Press.

Date: 1990
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