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The management of interest rate risk during the crisis: evidence from Italian banks

  • Lucia Esposito

    ()

    (Bank of Italy)

  • Andrea Nobili

    ()

    (Bank of Italy)

  • Tiziano Ropele

    ()

    (Bank of Italy)

Changes in interest rates constitute a major source of risk for banks� business activity and can diversely affect their financial conditions and performance. We use a unique dataset to analyse Italian banks� exposure to interest rate risk during the crisis, relying on the standardized duration gap approach proposed by the Basel Committee. We provide evidence that banks managed their overall interest rate risk exposure by means of on-balance-sheet restructuring complemented by hedging with financial derivatives. But the complementary relationship between risk-management decisions differs significantly across banks. The different impact of a future increase in interest rates on banks� economic value will be a matter of concern for policymakers when they return to a less accommodative monetary policy stance.

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File URL: http://www.bancaditalia.it/pubblicazioni/temi-discussione/2013/2013-0933/en_tema_933.pdf
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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 933.

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Date of creation: Sep 2013
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Handle: RePEc:bdi:wptemi:td_933_13
Contact details of provider: Postal: Via Nazionale, 91 - 00184 Roma
Web page: http://www.bancaditalia.it

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