The impact of interest rate risk on bank lending

Toni Beutler, Robert Bichsel, Adrian Bruhin and Jayson Danton

Journal of Banking & Finance, 2020, vol. 115, issue C

Abstract: This paper analyzes the transmission of realized interest rate risk to bank lending. It exploits unique supervisory information about the interest rate risk exposure of Swiss banks net of hedging. By weakening the banks’ economic capital, realized interest rate risk explains on average around one eighth or 30 basis points of the predicted total reduction in cumulative loan growth a year after an upward shock in nominal rates by one percentage point. Moreover, heterogeneity in exposures implies that the effects would differ across institutions. Finally, bank lending is mainly driven by the banks’ capital- rather than their liquidity-situation.

Keywords: Interest Rate Risk; Bank Lending; Monetary Policy Transmission (search for similar items in EconPapers)
JEL-codes: E44 E51 E52 G21 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Related works:
Working Paper: The Impact of Interest Rate Risk on Bank Lending (2017)
Working Paper: The Impact of Interest Rate Risk on Bank Lending (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:115:y:2020:i:c:s0378426620300650

DOI: 10.1016/j.jbankfin.2020.105797

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