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Interest and credit risk management in German banks: Evidence from a quantitative survey

Author

Listed:
  • Dräger Vanessa

    (39458 Deutsche Bundesbank, Wilhelm-Epstein-Strasse 14, 60431 Frankfurt, Germany)

  • Heckmann-Draisbach Lotta

    (39458 Deutsche Bundesbank, Wilhelm-Epstein-Strasse 14, 60431 Frankfurt, Germany)

  • Memmel Christoph

    (39458 Deutsche Bundesbank, Wilhelm-Epstein-Strasse 14, 60431 Frankfurt, Germany)

Abstract

Using unique data of a survey among small and medium-sized German banks, we analyze various aspects of risk management. We especially analyze the effect of a 200-bp increase in the interest level. We find that banks seem to reduce the volatility of their net interest margin by exposing themselves to interest rate risk, that they act as if they have a risk budget which they allocate either to interest rate risk or credit risk and that banks’ exposures to interest rate risk and to credit risk are remunerated. In addition, we find that, in the first year, the impairments of banks’ bond portfolios are much larger than the reductions in their net interest income, that banks attenuate the resulting write-downs by liquidating hidden reserves and that banks which use interest derivatives have lower impairments in their bond portfolios.

Suggested Citation

  • Dräger Vanessa & Heckmann-Draisbach Lotta & Memmel Christoph, 2021. "Interest and credit risk management in German banks: Evidence from a quantitative survey," German Economic Review, De Gruyter, vol. 22(1), pages 63-95, February.
    • Handle: RePEc:bpj:germec:v:22:y:2021:i:1:p:63-95:n:5
    DOI: 10.1515/ger-2019-0114
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    Cited by:

    1. Claußen, Catharina & Platte, Daniel, 2023. "Evaluating the validity of regulatory interest rate risk measures – a simulation approach," Journal of Banking & Finance, Elsevier, vol. 154(C).
    2. Memmel, Christoph & Heckmann-Draisbach, Lotta, 2023. "Banks' net interest margin and changes in the term structure," Discussion Papers 11/2023, Deutsche Bundesbank.
    3. Xiaoming Zhang & Wenzhe Zhang & Chien‐Chiang Lee, 2025. "Bank leverage and systemic risk: Impact of bank risk‐taking and inter‐bank business," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 30(2), pages 1450-1474, April.
    4. Ramona Busch & Helge C. N. Littke & Christoph Memmel & Simon Niederauer, 2022. "German banks’ behavior in the low interest rate environment," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 36(3), pages 267-296, September.
    5. Memmel, Christoph, 2023. "Abschätzung des Zinseinkommens der Banken in Deutschland," Technical Papers 05/2023, Deutsche Bundesbank.
    6. Heckmann-Draisbach, Lotta & Memmel, Christoph, 2024. "How good are banks’ forecasts?," International Review of Financial Analysis, Elsevier, vol. 95(PC).

    More about this item

    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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