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Interest rate risk and bank equity valuations

William B. English, Skander Van den Heuvel () and Egon Zakrajsek ()

Journal of Monetary Economics, 2018, vol. 98, issue C, 80-97

Abstract: Using high-frequency identification, we estimate the reaction of bank stock prices to movements in interest rates prompted by FOMC announcements and examine how this reaction varies with key bank characteristics. Bank stock prices decline significantly following unanticipated increases in the level or slope of the yield curve. The reaction is larger for banks that rely heavily on core deposits but is reduced for banks with a large maturity mismatch, consistent with banks’ role in maturity transformation. Policy-induced interest rate changes appear to affect accounting profits primarily through net interest margins and changes in the composition of bank balance sheets.

Keywords: Monetary policy; FOMC announcements; Interest rate surprises; Maturity transformation; Bank profitability; Deposit disintermediation (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 G21 (search for similar items in EconPapers)
Date: 2018
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Working Paper: Interest Rate Risk and Bank Equity Valuations (2014) Downloads
Working Paper: Interest rate risk and bank equity valuations (2012) Downloads
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