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How correlated are changes in banks' net interest income and in their present value?

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  • Memmel, Christoph

Abstract

We use portfolios of passive investment strategies to replicate the interest risk of banks' banking books. The following empirical statements are derived: (i) Changes in banks' present value and in their net interest income are highly correlated, irrespective of the banks' portfolio composition. (ii) However, banks' portfolio composition has a huge impact on the ratio of changes in net interest income relative to changes in present value. --

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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 2: Banking and Financial Studies with number 2010,14.

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Date of creation: 2010
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Handle: RePEc:zbw:bubdp2:201014

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Keywords: Interest rate risk; term transformation; interest income; change in present value;

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