Quantifying interest rate risk and the effect of model assumptions behind sight deposits

Stefan Kerbl (), Boris Simunovic () and Andreas Wolf ()
Additional contact information
Stefan Kerbl: Oesterreichische Nationalbank, On-Site Banking Inspections Division – Large Banks

Financial Stability Report, 2019, issue 37, 73-85

Abstract: Have Austrian banks taken on higher interest rate risks amid the low interest rate environment? According to the interest rate risk statistics, which quantify the effect of the regulatory 200-basis-point interest rate shock, interest rate risk as reported by banks has not risen significantly since the beginning of the low interest rate period. However, in measuring interest rate risk, banks need to rely on model assumptions, especially with regard to the repricing dates they assume for customer deposits. Harnessing this room for maneuver, banks may compensate for longer fixation periods on the assets side (maturity transformation). In turn, a higher degree of maturity transformation and interest rate sensitivity might not be fully reflected in the reported interest rate risk. Analyzing this room for maneuver, we calculate Austrian banks’ interest rate risk level over time while assuming standardized and conservative repricing dates. Under these conservative repricing dates, a different picture on interest rate risks emerges especially for large banks. We conclude that large banks in Austria have seen a marked increase in maturity transformation over time, which was mirrored by small and medium-sized banks to a lesser extent. It follows that interest rate risk in the banking book, and its quantification, is now more relevant for evaluating banks’ business models and capital adequacy than was the case before the start of the low interest rate phase.

Keywords: interest rate risk; maturity transformation; low interest rate environment; risk quantification and management; bank capital (search for similar items in EconPapers)
JEL-codes: E43 G21 G28 G38 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.oenb.at/dam/jcr:155ed960-df2a-4531-88a ... l_simunovic_wolf.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:onb:oenbfs:y:2019:i:37:b:2

Ordering information: This journal article can be ordered from
Oesterreichische Nationalbank, Documentation Management and Communications Services, Otto-Wagner Platz 3, A-1090 Vienna, Austria

Access Statistics for this article

Financial Stability Report is currently edited by Markus Schwaiger, Birgit Niessner, Vanessa Redak and Martin Schuerz

More articles in Financial Stability Report from Oesterreichische Nationalbank (Austrian Central Bank) P.O. Box 61, A-1011 Vienna, Austria. Contact information at EDIRC.
Bibliographic data for series maintained by Stefan W. Schmitz ().