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

Author

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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.

Suggested Citation

  • Memmel, Christoph, 2010. "How correlated are changes in banks' net interest income and in their present value?," Discussion Paper Series 2: Banking and Financial Studies 2010,14, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdp2:201014
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    More about this item

    Keywords

    Interest rate risk; term transformation; interest income; change in present value;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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