ZBB 2022, 228

RWS Verlag Kommunikationsforum GmbH & Co. KG, Köln RWS Verlag Kommunikationsforum GmbH & Co. KG, Köln 2199-1715 Zeitschrift für Bankrecht und Bankwirtschaft ZBB 2022 AufsätzeDaniel Platte*

Banks’ Management of Interest Rate Risk: Empirical Evidence from Savings Banks and Credit Cooperatives

German banking supervisors repeatedly warn of the potential threats arising from the current levels of interest rate risk. Especially banks with a traditional business model that highly depend on income from their interest business have extended their maturity transformation to stabilize the net interest margins with higher term premiums. This paper uses a unique data set comprising balance sheet data from German savings banks and credit cooperatives enhanced with information from their disclosure reports between 2012 and 2020 to analyze the level of interest rate risk and its management. The results suggest that interest rate derivatives are not primarily related to the general level of interest rate risk in banks but may particularly be used by banks to avoid exceeding specific regulatory limits. Furthermore, smaller banks are less likely to use derivatives. However, the results suggest that these banks manage their interest rate risk exposure via higher shares of securities, giving these banks more flexibility in maturity management.

Contents

  • I. Introduction
  • II. Foundations of interest rate risk in the banking book
  • III. Methodological approach and data
    • 1. Outline of the analysis
    • 2. Data
  • IV. Results of the analysis
    • 1. Derivative usage
    • 2. Risk coefficient
  • V. Concluding remarks and outlook
*
*)
M.Sc., Research Assistant, Finance Center Münster, University of Münster.
I thank an anonymous reviewer for worthwile suggestions, Jörn Debener for helpful comments, and Andreas Ernsting and Patrick Pohla for their research assistance. This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors. Declarations of interest: none.

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