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Systemic interest rate and market risk at US banks

Author

Listed:
  • Ludwig Hausse

    (University of Augsburg)

  • Martin Rohleder

    (University of Augsburg)

  • Marco Wilkens

    (University of Augsburg)

Abstract

This paper is the first to quantify and analyze the dynamics of market risk (MR) and interest rate risk (IRR) of the system of US bank holding companies (BHCs) based on time-varying risk exposures estimated using the Kalman filter. These dynamics can be ex-plained to a considerable degree by the development of the macro economy as well as by the state and structure of the banking system itself. We further determine each single bank’s contribution to the banking system’s MR and IRR and show that single banks have non-trivial leverage over the banking system’s systematic risk exposure at specific times. Such risk contributions can be explained by banks’ financing or deposit base, maturity transformation intensity and interest income, earnings diversification and the liquidity of banks’ holdings. Our findings thus facilitate better oversight and management of the systematic risks inherent in the banking system.

Suggested Citation

  • Ludwig Hausse & Martin Rohleder & Marco Wilkens, 2016. "Systemic interest rate and market risk at US banks," Journal of Business Economics, Springer, vol. 86(8), pages 933-961, November.
    • Handle: RePEc:spr:jbecon:v:86:y:2016:i:8:d:10.1007_s11573-016-0830-8
    DOI: 10.1007/s11573-016-0830-8
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    More about this item

    Keywords

    Interest rate risk; Market risk; Banks; Banking system;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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