Quantifying the Interest Rate Risk of Banks: Assumptions Do Matter
University of Passau
University of Augsburg
March 20, 2009
European Financial Management, Forthcoming
This paper analyzes the robustness of the standardized framework proposed by the Basel Committee on Banking Supervision (2004b) to quantify the interest rate risk of banks. We generalize this framework and study the change in the estimated level of interest rate risk if the strict assumptions of the standardized framework are violated. Using data on the German universal banking system, we find that estimates of the interest rate risk are very sensitive to the framework’s assumptions. We conclude that the results obtained using the standardized framework in its current specification should be treated with caution when used for supervisory and risk management purposes.
Keywords: interest rate risk, Basel Capital Accord, banking supervision, standardized interest rate shock
JEL Classification: G18, G21Accepted Paper Series
Date posted: February 26, 2008 ; Last revised: April 22, 2009
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo6 in 0.359 seconds