Interest Rate Sensitivity
How much a bank's earnings change when interest rates move.
Definition
Interest rate sensitivity measures the impact of interest rate changes on a bank's net interest income and economic value. Asset-sensitive banks benefit from rising rates (their assets reprice faster than liabilities), while liability-sensitive banks benefit from falling rates. Banks disclose this sensitivity in their 10-K filings.
Why It Matters
Understanding a bank's interest rate positioning is crucial for forecasting earnings in different rate environments. A bank positioned for rising rates will underperform if rates fall, and vice versa.