Interest and credit risk management in German banks: Evidence from a quantitative survey

Vanessa Dräger, Lotta Heckmann-Draisbach and Christoph Memmel

No 02/2020, Discussion Papers from Deutsche Bundesbank

Abstract: Using unique data of a survey among small and medium-sized German banks, we analyze various aspects of risk management over a short-term and medium-term horizon. We especially analyze the effect of a 200-bp increase in the interest level. We find that, in the first year, the impairments of banks' bond portfolios are much larger than the reductions in their net interest income, that banks attenuate the resulting write-downs by liquidating hidden reserves and that banks which use interest derivatives have lower impairments in their bond portfolios. In addition, we find that banks' exposures to interest rate risk and to credit risk are remunerated, that banks' try to stabilize the mid-term net interest margin with exposure to interest rate risk and that they act as if they have a risk budget which they allocate either to interest rate risk or credit risk.

Keywords: net interest margin; bond portfolio; interest rate risk; credit risk (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-ban and nep-rmg
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https://www.econstor.eu/bitstream/10419/213862/1/1689876328.pdf (application/pdf)

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Journal Article: Interest and credit risk management in German banks: Evidence from a quantitative survey (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:022020

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