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An analysis of commercial bank exposure to interest rate risk

Author

Listed:
  • James V. Houpt
  • David M. Wright

Abstract

This article evaluates some of the factors that may be affecting the level of interest rate risk among commercial banks and estimates the general magnitude and significance of this risk using data from the quarterly Reports of Condition and Income and a simple interest rate risk model. That risk measure suggests that the interest rate risk exposure for the vast majority of the banking industry is not significant at present. The article also concludes that a relatively simple model can be useful for broadly measuring the interest rate risk exposure of institutions that do not have unusual or complex asset characteristics.

Suggested Citation

  • James V. Houpt & David M. Wright, 1996. "An analysis of commercial bank exposure to interest rate risk," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), vol. 82(Feb), pages 115-128, February.
    • Handle: RePEc:fip:fedgrb:y:1996:i:feb:p:115-128:n:v.82no.2
    DOI: 10.17016/bulletin.1996.82-2
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    Cited by:

    1. Gregory E. Sierra & Timothy J. Yeager, 2003. "What does the Federal Reserve’s economic value model tell us about interest rate risk at U.S. community banks?," Supervisory Policy Analysis Working Papers 2003-01, Federal Reserve Bank of St. Louis.
    2. Beverly Hirtle, 1997. "Derivatives, Portfolio Composition, and Bank Holding Company Interest Rate Risk Exposure," Journal of Financial Services Research, Springer;Western Finance Association, vol. 12(2), pages 243-266, October.
    3. Stojanovic, Dusan & Vaughan, Mark D. & Yeager, Timothy J., 2008. "Do Federal Home Loan Bank membership and advances increase bank risk-taking?," Journal of Banking & Finance, Elsevier, vol. 32(5), pages 680-698, May.
    4. Mathias Drehmann & Steffen Sorensen & Marco Stringa, 2008. "The integrated impact of credit and interest rate risk on banks: an economic value and capital adequacy perspective," Bank of England working papers 339, Bank of England.
    5. Di Giorgio, Giorgio & Rotondi, Zeno, 2011. "Financial stability, interest-rate smoothing and equilibrium determinacy," Journal of Financial Stability, Elsevier, vol. 7(1), pages 1-9, January.
    6. Adriatik Kotorri & Mirela Miti & Ingrit Konomi, 2014. "Assessment Of Banking Assets On Financial Risk Management - Albanian Case," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 1, pages 314-318, February.
    7. Thomas B. King & Daniel A. Nuxoll & Timothy J. Yeager, 2006. "Are the causes of bank distress changing? can researchers keep up?," Review, Federal Reserve Bank of St. Louis, vol. 88(Jan), pages 57-80.
    8. Skander Van den Heuvel, 2006. "The Bank Capital Channel of Monetary Policy," 2006 Meeting Papers 512, Society for Economic Dynamics.
    9. Galen Sher & Giuseppe Loiacono, 2013. "Maturity Transformation and Interest Rate Risk in Large European Bank Loan Portfolios," EcoMod2013 5442, EcoMod.
    10. Yasuo Nishiyama, 2007. "Are Banks Risk-Averse?," Eastern Economic Journal, Eastern Economic Association, vol. 33(4), pages 471-490, Fall.
    11. Sergio A. Correia & Stephan Luck & Emil Verner, 2024. "Failing Banks," Staff Reports 1117, Federal Reserve Bank of New York.
    12. Vickery, James, 2008. "How and why do small firms manage interest rate risk," Journal of Financial Economics, Elsevier, vol. 87(2), pages 446-470, February.
    13. Oliver Entrop & Marco Wilkens & Alexander Zeisler, 2009. "Quantifying the Interest Rate Risk of Banks: Assumptions Do Matter," European Financial Management, European Financial Management Association, vol. 15(5), pages 1001-1018, November.
    14. International Monetary Fund, 2004. "Interest Rate Volatility and Risk in Indian Banking," IMF Working Papers 2004/017, International Monetary Fund.
    15. Leslie Hodder & Mark Kohlbeck & Mary Lea McAnally, 2002. "Accounting Choices and Risk Management: SFAS No. 115 and U.S. Bank Holding Companies," Contemporary Accounting Research, John Wiley & Sons, vol. 19(2), pages 225-270, June.
    16. Cerrone, Rosaria & Cocozza, Rosa & Curcio, Domenico & Gianfrancesco, Igor, 2017. "Does prudential regulation contribute to effective measurement and management of interest rate risk? Evidence from Italian banks," Journal of Financial Stability, Elsevier, vol. 30(C), pages 126-138.
    17. Sanjay Sehgal & Tarunika Jain Agrawal, 2017. "Bank Risk Factors and Changing Risk Exposures in the Pre- and Post-financial Crisis Periods: An Empirical Study for India," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 42(4), pages 356-378, November.

    More about this item

    Keywords

    Bank profits; Interest rates;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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