Interest and credit risk management in German banks: Evidence from a quantitative survey

Dräger Vanessa (), Heckmann-Draisbach Lotta () and Christoph Memmel
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Dräger Vanessa: 39458 Deutsche Bundesbank, Wilhelm-Epstein-Strasse 14, 60431 Frankfurt, Germany
Heckmann-Draisbach Lotta: 39458 Deutsche Bundesbank, Wilhelm-Epstein-Strasse 14, 60431 Frankfurt, Germany

German Economic Review, 2021, vol. 22, issue 1, 63-95

Abstract: Using unique data of a survey among small and medium-sized German banks, we analyze various aspects of risk management. We especially analyze the effect of a 200-bp increase in the interest level. We find that banks seem to reduce the volatility of their net interest margin by exposing themselves to interest rate risk, that they act as if they have a risk budget which they allocate either to interest rate risk or credit risk and that banks’ exposures to interest rate risk and to credit risk are remunerated. In addition, we find that, in the first year, the impairments of banks’ bond portfolios are much larger than the reductions in their net interest income, that banks attenuate the resulting write-downs by liquidating hidden reserves and that banks which use interest derivatives have lower impairments in their bond portfolios.

Keywords: Net interest margin; bond portfolio; interest rate risk; credit risk (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (5)

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DOI: 10.1515/ger-2019-0114

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