Abstract:

Medium and long term forecasts for banksare undermined by excessive volatility in the economy.Making predictions on interest rates is a difficult problem in these conditions. The purpose of this paper is to present a technique used in banking to reduce interest rate risk, that is named GAP model or model of discrepancy between assets and liabilities of banks.The methodology used is based on anticipating trends of change of interest rate on the market and regular immunization of bank by modifying the structure of bank assets and liabilities.The paper is important because it proves that reduce volatility for net interest income by direct adjustment of assets and liabilities sensitive to interest rate changes.The result of applying this method to mitigate interest rate risk is the implementation, in banks, of an effective management of assets and liabilities, and to resort to alternatives for action aimed at obtaining maximum gains under an acceptable level of risk taking.