Entering the Euro System: Banking System Experience in Slovenia

SreÄko Devjak, Andraž Grum and Nina VerÅ¡nik Äemas

Eastern European Economics, 2009, vol. 47, issue 2, 53-68

Abstract: With Slovenia's entry in the euro system, the instruments of the Bank of Slovenia matured gradually. Banks and savings banks within the banking system invested the acquired liquidity in line with an investment strategy and tendency to assume risks for investments in alternative debt securities. Using a mathematical model, this paper estimates how much the interest rate risk as a market (price) risk has increased within the entire banking system since Slovenia's entry into the euro system. The estimated increase of interest rate risk is compared to the portfolio of alternative debt securities, volume of regulatory capital, and net profit sum of banks and savings banks in the Slovenian financial area in 2006, to assess accurately the significance of interest rate risk within the banking system and on the required supervisory operations of the Bank of Slovenia. Our findings are also of interest to countries with central banks that have not been integrated into the euro system and also issue securities in conducting their monetary policies.

Date: 2009
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