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Which interest rate scenario is the worst one for a bank? Evidence from a tracking bank approach for German savings and cooperative banks

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  • Memmel, Christoph

Abstract

Interest income is the most important source of revenue for most of the banks. The aim of this paper is to assess the impact of different interest rate scenarios on the banks' interest income. As we do not know the interest rate sensitivity of real banks, we construct for each bank a portfolio with a similar composition of its assets and liabilities, called 'tracking bank'. We evaluate the effect of 260 historical interest rate shocks on the tracking banks of German savings banks and cooperative banks. It turns out that a sharp decrease in the steepness of the yield curve has the most negative impact on the banks' interest income. -- Der Zinsüberschuss ist für die meisten Banken die wichtigste Ertragsquelle. Stresstests in Bezug auf den Zinsüberschuss sind daher von wesentlicher Bedeutung. Die einzelnen Banken können solche Stresstests relativ einfach durchführen, weil ihnen die notwendigen Informationen (zukünftige Zahlungsströme und die Laufzeitstruktur der Forderungen und Verbindlichkeiten) vorliegen. Au?enstehende dagegen müssen die Laufzeitstruktur der Forderungen und Verbindlichkeiten auf Grundlage von Aktienkursänderungen oder Jahresabschlüssen schätzen.

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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 2008,07.

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Date of creation: 2008
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Handle: RePEc:zbw:bubdp2:7317

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Keywords: Interest Rate Risk; Stress Testing;

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  1. Sharpe, William F., 1967. "Portfolio Analysis," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 2(02), pages 76-84, June.
  2. Jan Willem van den End & Marco Hoeberichts & Mostafa Tabbae, 2006. "Modelling Scenario Analysis and Macro Stress-testing," DNB Working Papers, Netherlands Central Bank, Research Department 119, Netherlands Central Bank, Research Department.
  3. Diebold, Francis X. & Li, Canlin, 2006. "Forecasting the term structure of government bond yields," Journal of Econometrics, Elsevier, Elsevier, vol. 130(2), pages 337-364, February.
  4. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, Econometric Society, vol. 46(6), pages 1251-71, November.
  5. James M. O'Brien, 2000. "Estimating the value and interest rate risk of interest-bearing transactions deposits," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2000-53, Board of Governors of the Federal Reserve System (U.S.).
  6. Wilkens, Marco & Memmel, Christoph & Entrop, Oliver & Zeisler, Alexander, 2008. "Analyzing the interest rate risk of banks using time series of accounting-based data: evidence from Germany," Discussion Paper Series 2: Banking and Financial Studies, Deutsche Bundesbank, Research Centre 2008,01, Deutsche Bundesbank, Research Centre.
  7. Nelson, Charles R & Siegel, Andrew F, 1987. "Parsimonious Modeling of Yield Curves," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 60(4), pages 473-89, October.
  8. Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, American Finance Association, vol. 47(2), pages 427-65, June.
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Cited by:
  1. Ruprecht, Benedikt & Entrop, Oliver & Kick, Thomas & Wilkens, Marco, 2013. "Market Timing, Maturity Mismatch, and Risk Management: Evidence from the Banking Industry," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order, Verein für Socialpolitik / German Economic Association 79733, Verein für Socialpolitik / German Economic Association.
  2. Memmel, Christoph, 2010. "Banks' exposure to interest rate risk, their earnings from term transformation, and the dynamics of the term structure," Discussion Paper Series 2: Banking and Financial Studies, Deutsche Bundesbank, Research Centre 2010,07, Deutsche Bundesbank, Research Centre.
  3. Memmel, Christoph & Schertler, Andrea, 2011. "Banks' management of the net interest margin: Evidence from Germany," Discussion Paper Series 2: Banking and Financial Studies, Deutsche Bundesbank, Research Centre 2011,13, Deutsche Bundesbank, Research Centre.
  4. Entrop, Oliver & Memmel, Christoph & Ruprecht, Benedikt & Wilkens, Marco, 2012. "Determinants of bank interest margins: Impact of maturity transformation," Discussion Papers, Deutsche Bundesbank, Research Centre 17/2012, Deutsche Bundesbank, Research Centre.
  5. Christoph Memmel & Andrea Schertler, 2013. "Bank management of the net interest margin: new measures," Financial Markets and Portfolio Management, Springer, Springer, vol. 27(3), pages 275-297, September.

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