1. Use the balance sheet for San Diego Bank in Exhibit A and the industry norms in Exhibit B to answer the following questions. a. Estimate the gap and the gap ratio and determine how San Diego Bank would be affected by an increase in interest rates over time.
b. Assess San Diego’s credit risk. Does it appear high or low relative to the industry? Would San Diego Bank perform better or worse than other banks during a recession?
c. For any type of bank risk that appears to be higher than the industry, explain how the balance sheet could be restructured to reduce the risk.