a)

Core deposits are only 8% of the total assets.Thus bank is vulnerable to quick cash
withdrawl and high interest rate sensitivity. It should increase the core deposits.

b)

long term securities are a major part of the total assets. Thus in case of any increase
in interest rate bank will not be able to adjust quickly and face problems. Bank should
focus on interest rate flexible assets and liabilities.

ble to quick cash

core deposits.

se of any increase
blems. Bank should

Core deposits
TA
core deposits/TA
long term securities
long term/TA

50
625
8.00%
150
24.00%

Interest bearing checking accounts are increasing while passbook savings deposits are decreasing. Th
less interest rate sensitive money to high interest rate sensitive money.

posits are decreasing. Thus the management should be concerned as money is moving away from loyal and

away from loyal and

Bank is having conditional deposit pricing method where it does not charge any maintenance fees on
as per check charge fee for account balances below 1500$. Thus it is encouraging customers to keep
away the small customers as charges are more for the accounts below $1000.

ny maintenance fees on account balalnces over $1500 while it charges fixed price as well
aging customers to keep more money in the deposit account as well as this policy may drive

Deposit Flow

Interest Offered
Marginal Cost Marginal Cost Rate
10
3.00%
0.30
3.00%
15
3.25%
0.19
3.75%
20
3.50%
0.21
4.25%
26
3.75%
0.28
4.58%
28
4.00%
0.15
7.25%

Marginal Revenue
MR-MC
Profits
6.25%
3.25%
0.325
6.25%
2.50%
0.45
6.25%
2.00%
0.55
6.25%
1.67%
0.65 Bank should offer 3.75% interest rate to its depositers so th
6.25%
-1.00%
0.63 profit is maximised.

ate to its depositers so that

Deposit Flow
Interest Offered
Marginal Cost
Marginal Cost Rate
100
2.75%
2.75
2.75%
200
3.25%
6.5
6.50%
300
3.75%
11.25
11.25%
400
4.00%
16
16.00%
500
4.25%
21.25
21.25%
600
4.50%
27
27.00%

Marginal Revenue
Marginal Revenue
MR-MC
Profits
5.50%
5.5
2.75%
2.75 The bank should try to attract 100 mil
5.50%
5.5
-1.00%
4.5 in this case MR-MC>0.
5.50%
5.5
-5.75%
5.25
5.50%
5.5 -10.50%
6
5.50%
5.5 -15.75%
6.25
5.50%
5.5 -21.50%
6

ould try to attract 100 million deposits as only

MR-MC>0.

Servicing Costs
Overhead

$
$

2.65
1.18

Deposit
Savings

Profit Margin
Monthly Fee

$
$

0.50
4.33

Monthly Fee
New Fee

1000
0.66

$
$

4.33
3.67

January
Febraury
March
April
May
June
July
August
September
October
November
December
Average
interest
APY

400
250
300
150
225
300
350
425
550
600
625
300
372.917
10.75
2.883