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

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  • Wetmore, Jill L T
  • Brick, John R

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.

Suggested Citation

  • Wetmore, Jill L T & Brick, John R, 1990. "Interest Rate Risk and the Optimal Gap for Commercial Banks: An Empirical Study," The Financial Review, Eastern Finance Association, vol. 25(4), pages 539-557, November.
    • Handle: RePEc:bla:finrev:v:25:y:1990:i:4:p:539-57
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