Since 2017, students in both the base and accelerated sections of the managerial finance course we have taught at Stanford Graduate School of Business have learned in the early weeks of the quarter about bank balance sheets' vulnerability to rising interest rates. First-year MBA students who took our classes might remember that in week three, after presenting some basics on how fixed-income assets are priced, we provide them with a very basic spreadsheet that shows a balance sheet roughly representative of different sectors in the U.S. banking system. Using this spreadsheet, we ask our students to apply their knowledge to infer the fragility of each sector, specifically by looking at what happens to bank equity if interest rates rise by one or two percentage points. Through this example, we illustrate the basic concept of interest rate risk: when interest rates rise, the bonds that banks hold on the asset side of their balance sheets fall in value. The longer duration the asset, the...
learn more
Ratings & Reviews
Entrepreneur & Investor
YOU MIGHT ALSO LIKE