The management of interest rate risk during the crisis: evidence from Italian banks
AbstractChanges in interest rates constitute a major source of risk for banksâ€™ business activity and can diversely affect their financial conditions and performance. We use a unique dataset to analyse Italian banksâ€™ exposure to interest rate risk during the crisis, relying on the standardized duration gap approach proposed by the Basel Committee. We provide evidence that banks managed their overall interest rate risk exposure by means of on-balance-sheet restructuring complemented by hedging with financial derivatives. But the complementary relationship between risk-management decisions differs significantly across banks. The different impact of a future increase in interest rates on banksâ€™ economic value will be a matter of concern for policymakers when they return to a less accommodative monetary policy stance.
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Bibliographic InfoPaper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 933.
Date of creation: Sep 2013
Date of revision:
interest rate risk; derivatives; hedging; financial crisis;
Find related papers by JEL classification:
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-18 (All new papers)
- NEP-BAN-2013-10-18 (Banking)
- NEP-CBA-2013-10-18 (Central Banking)
- NEP-MAC-2013-10-18 (Macroeconomics)
- NEP-RMG-2013-10-18 (Risk Management)
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