Banks' Risk Exposures

Juliane Begenau, Monika Piazzesi and Martin Schneider

No 21334, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper represents U.S. banks’ fixed-income positions, including derivatives, as portfolios with two weights that describe time-varying exposures to interest-rate and credit risk. Our approach exploits the factor structure in fixed-income returns; it allows simple stress tests and concisely summarizes risk-taking over the last 30 years. Before the 2022 crisis, smaller, less-regulated banks increased both exposures. They lost when both risk factors came in low and did not hedge each other, in contrast to earlier times of stress. Moreover, banks systematically increase interest-rate risk exposure ahead of low excess returns on long bonds, consistent with a liquidity-centric business model.

JEL-codes: E4 E43 E58 G0 G2 G21 (search for similar items in EconPapers)
Date: 2015-07
New Economics Papers: this item is included in nep-ban, nep-mac and nep-rmg
Note: AP CF EFG ME
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Citations: View citations in EconPapers (25)

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