Who bears interest rate risk?

Peter Hoffmann, Sam Langfield (), Federico Pierobon and Guillaume Vuillemey

No 2176, Working Paper Series from European Central Bank

Abstract: We study the allocation of interest rate risk within the European banking sector using novel data. Banks’ exposure to interest rate risk is small on aggregate, but heterogeneous in the cross-section. In contrast to conventional wisdom, net worth is increasing in interest rates for approximately half of the institutions in our sample. Cross-sectional variation in banks’ exposures is driven by cross-country differences in loan-rate fixation conventions for mortgages. Banks use derivatives to partially hedge on-balance sheet exposures. Residual exposures imply that changes in interest rates have redistributive effects within the banking sector. JEL Classification: G21, E43, E44

Keywords: Banking; Hedging; Interest Rate Risk; Risk Management (search for similar items in EconPapers)
Date: 2018-09
New Economics Papers: this item is included in nep-ban, nep-eec, nep-fmk and nep-rmg
Note: 1137913
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Related works:
Journal Article: Who Bears Interest Rate Risk? (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20182176

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