Bank's interest rate risk and profitability in a prolonged environment of low interest rates

Raymond Chaudron

Journal of Banking & Finance, 2018, vol. 89, issue C, 94-104

Abstract: This paper investigates the size and development of banking book interest rate risk positions of Dutch banks during 2008 to 2015. Due to hedging, interest rate risk is small and the income from maturity transformation is only a small share of the net interest margin and the return on assets. However, interest rate risk positions do vary significantly between banks and over time. My results suggest that banks lower their interest rate risk significantly when the yield curve flattens. Interest rate risk is negatively related to on-balance sheet leverage and has a U-shaped relation with solvability for banks that do not use derivatives. Banks that received government assistance during the financial crisis have higher interest rate risk than banks that did not receive assistance.

Keywords: Interest rate risk; Banks; Banking book; Hedging; Profitability (search for similar items in EconPapers)
JEL-codes: D81 E43 G21 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:89:y:2018:i:c:p:94-104

DOI: 10.1016/j.jbankfin.2018.01.007

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