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 measures interest rate and credit risk exposures in U.S. banks’ fixed-income positions over the last 30 years. We exploit the factor structure in fixed-income returns to represent banks’ positions, including derivatives, as simple portfolios. The typical bank is long both risk factors, with interest-rate exposure from derivatives reinforcing that from other business. Until recently, interest-rate exposure hedged credit exposure in times of stress. The 2022-3 crisis was special because both risk factors performed poorly at the same time, hurting especially less-regulated small banks that had built up both exposures. Banks also systematically increase interest-rate risk exposure ahead of low excess returns on long bonds, which we show to be 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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