Banks' Exposure to Interest Rate Risk and The Transmission of Monetary Policy

Augustin Landier, David Sraer and David Thesmar

No 18857, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We show empirically that banks' exposure to interest rate risk, or income gap, plays a crucial role in monetary policy transmission. In a first step, we show that banks typically retain a large exposure to interest rates that can be predicted with income gap. Secondly, we show that income gap also predicts the sensitivity of bank lending to interest rates. Quantitatively, a 100 basis point increase in the Fed funds rate leads a bank at the 75th percentile of the income gap distribution to increase lending by about 1.6 percentage points annually relative to a bank at the 25th percentile.

JEL-codes: E51 E52 G2 G21 G3 (search for similar items in EconPapers)
Date: 2013-02
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
Note: CF ME
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Citations: View citations in EconPapers (58)

Published as Gomez, Matthieu & Landier, Augustin & Sraer, David & Thesmar, David, 2021. "Banks’ exposure to interest rate risk and the transmission of monetary policy," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 543-570.

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Related works:
Journal Article: Banks’ exposure to interest rate risk and the transmission of monetary policy (2021)
Working Paper: Banks' exposure to interest rate risk and the transmission of monetary policy (2016)
Working Paper: Banks Exposure to Interest Rate Risk and The Transmission of Monetary Policy (2014)
Working Paper: Banks Exposure to Interest Rate Risk and The Transmission of Monetary Policy (2013)
Working Paper: Banks Exposure to Interest Rate Risk and The Transmission of Monetary Policy (2013)
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