Why Do Banks Bear Interest Rate Risk?

Christoph Memmel

Schmalenbach Business Review, 2018, vol. 70, issue 3, No 2, 253 pages

Abstract: Abstract This paper investigates determinants of banks’ structural exposure to interest rate risk in their banking book. Using bank-level data for German banks, we find evidence that a bank’s exposure to interest rate risk depends on its presumed optimization horizon. The longer the presumed optimization horizon is, the more the bank is exposed to interest rate risk in its banking book. Moreover, there is evidence that banks hedge their earnings risk resulting from falling interest levels with exposure to interest rate risk. The more a bank is exposed to the risk of a decline in the interest rate level, the higher its exposure to interest rate risk.

Keywords: Interest rate risk; Banks’ business model; Hedging; G21 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://link.springer.com/10.1007/s41464-018-0051-5 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

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:spr:schmbr:v:70:y:2018:i:3:d:10.1007_s41464-018-0051-5

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/41464

DOI: 10.1007/s41464-018-0051-5

Access Statistics for this article

Schmalenbach Business Review is currently edited by Alfred Wagenhofer

More articles in Schmalenbach Business Review from Springer, Schmalenbach-Gesellschaft
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().