March 2002
Intermediate to advanced
176 pages
3h 48m
English
book
Asset and Liability Management: The Banker’s Guide to Value Creation and Risk Control, Second Edition
by Jean Dermine, Youssef F. Bissada
Content preview from Asset and Liability Management: The Banker’s Guide to Value Creation and Risk Control, Second Edition
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Appendix: Reserve requirement and transfer price
Let us assume that:
| D | = deposits |
| d | = deposit rate |
| r | = central bank reserve requirement (in percentage of deposits) |
| R | = reserves with the central bank (R = r × D) |
| IA | = interbank assets |
| i | = interbank rate |
Then we have:
Central bank reserves + interbank assets = deposits
Interest margin = revenue – expenses
R + IA = D
IA = D – R
| Interest margin | = | (i × IA) – (d × D) = i × (D – R) – (d × D) |
| = [i × (D – r × D)] – (d × D) | ||
| = i × (1 – r) × D – (d × D) |
The transfer price is the matched-maturity interbank rate adjusted by the central bank’s reserve requirement (i × (1 – r)).
Exercise: Stage Five
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