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The distribution of interest rate risk in the euro area

Author

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  • Hoffmann, Peter
  • Klaus, Benjamin
  • Langfield, Sam

Abstract

This special feature analyses the distribution of interest rate risk in the euro area economy using balance sheet data and information on derivatives positions from significant credit institutions. On aggregate, banks’ interest rate risk exposure is small relative to their loss absorption capacity, but exposure varies across institutions. This variation is driven by loan rate fixation practices at country level. Banks use derivatives for hedging, but retain residual interest rate risk exposures. In fixed-rate countries the main vulnerability to rising interest rates lies with the banks that have the greatest interest rate risk, while households would be directly affected in countries with predominantly variable-rate loans. In the latter case, increased loan servicing costs due to rising interest rates could affect banks through lower asset quality. JEL Classification: G00

Suggested Citation

  • Hoffmann, Peter & Klaus, Benjamin & Langfield, Sam, 2018. "The distribution of interest rate risk in the euro area," Financial Stability Review, European Central Bank, vol. 1.
  • Handle: RePEc:ecb:fsrart:2018:0001:3
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    File URL: https://www.ecb.europa.eu//pub/financial-stability/fsr/special/html/ecb.fsrart201805_3.en.html
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    Citations

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    Cited by:

    1. Katharina Allinger & Julia Wörz, 2020. "The sensitivity of banks’ net interest margins to interest rate conditions in CESEE," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue Q1/20, pages 51-70.

    More about this item

    Keywords

    euro area; interest rate risk;

    JEL classification:

    • G00 - Financial Economics - - General - - - General

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