Abstract

http://ssrn.com/abstract=2220360
 
 

References (16)



 
 

Citations (4)



 


 



Banks' Exposure to Interest Rate Risk and the Transmission of Monetary Policy


Augustin Landier


Toulouse School of Economics

David Alexandre Sraer


University of California, Berkeley; Princeton University

David Thesmar


HEC Paris - Finance Department

September 26, 2013


Abstract:     
We show that banks' exposure to interest rate risk, or income gap, plays a crucial role in monetary policy transmission. While banks have, on average, positive levels of income gap - their assets are more sensitive to interest rate changes than their liabilities - there is substantial heterogeneity in the cross-section of banks in how exposed they are to interest rate risk. In a first step, we show that the sensitivity of bank profits to interest rates increases significantly with their income gap, even when banks use interest rate derivatives. In a second step, we show that the income gap also predicts the sensitivity of bank lending to interest rates, both for commercial & industrial loans and for mortgages. Quantitatively, a 100 basis point increase in the Fed funds rate leads a bank at the 75th percentile of the income gap distribution to increase lending by about 1.6 percentage points annually relative to a bank at the 25th percentile. We conclude that banks' exposure to interest rate risk is an important determinant of the lending channel.

Number of Pages in PDF File: 42

Keywords: Interest rate risk, monetary policy, bank lending

JEL Classification: E52, G21, E44

working papers series


Download This Paper

Date posted: February 19, 2013 ; Last revised: November 8, 2013

Suggested Citation

Landier, Augustin and Sraer , David Alexandre and Thesmar, David, Banks' Exposure to Interest Rate Risk and the Transmission of Monetary Policy (September 26, 2013). Available at SSRN: http://ssrn.com/abstract=2220360 or http://dx.doi.org/10.2139/ssrn.2220360

Contact Information

Augustin Landier
Toulouse School of Economics ( email )
Place Anatole-France
Toulouse Cedex, F-31042
France
David Alexandre Sraer
University of California, Berkeley ( email )
310 Barrows Hall
Berkeley, CA 94720
United States
Princeton University ( email )
22 Chambers Street
Princeton, NJ 08544
United States
David Thesmar (Contact Author)
HEC Paris (Groupe HEC) - Finance Department ( email )
1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France
+33 1 39 67 94 12 (Phone)
HOME PAGE: http://www.hec.fr/hec/eng/professeurs_recherche/p_liste/p_fiche.php?num=135

Feedback to SSRN


Paper statistics
Abstract Views: 1,385
Downloads: 299
Download Rank: 57,465
References:  16
Citations:  4

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo5 in 0.343 seconds