Banks’ Dynamic Interest Rate Risk Hedging

Michele Leonardo Bianchi, Dario Ruzzi and Anatoli Segura

No 21588, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We use granular regulatory data on euro interest rate swap trades over the period 2021-2024 to analyse the dynamics of Italian banks’ hedging of interest rate risk in their securities portfolio. We find that on average and over the full period, banks use swaps as hedging instruments: a third of the value losses on securities following a 100 basis points upward shift of the yield curve are offset by the associated gains on swap positions. The intensity in securities hedging through swaps increases by 6% after policy rates rise in mid-2022. Causality of such increase is assessed with an analysis based on monetary policy surprises. The increase in hedging intensity during the tightening period is more important for banks with initially lower capital and less stable funding.

JEL-codes: E43 E52 G11 G21 (search for similar items in EconPapers)
Date: 2026-06
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