Banc One Asset and Liability Management
Questions for this case:
1. What is the nature of the problem faced by Banc One in November 1993?
2. How does Banc One measure its interest rate risk exposure?
3. What sort of interest rate risk management is followed by Banc One? What is the rationale of the interest rate risk policy (asset sensitive) followed by this bank?
4. Why is Banc One using derivatives as part of its interest rate risk management? Could the same results be achieved without the use of derivatives? How? Which alternative is best for the bank?
5. Explain the logic behind the AIRS. Why is Banc One using them?
6. Explain the logic behind the basis swaps used by Banc One. Why is their total notional amount growing?
7. What are the risks associated with the use of derivatives in this context?
8. Are swaps distorting Banc One’s reported earnings and risk?
9. Is the Bank’s use of derivatives creating or destroying value? Why? What should the bank do?