Quantifying the Interest Rate Risk of Banks: Assumptions Do Matter

Posted: 26 Feb 2008 Last revised: 22 Apr 2009

See all articles by Oliver Entrop

Oliver Entrop

University of Passau

Alexander Zeisler

Barclays

Marco Wilkens

University of Augsburg

Multiple version iconThere are 2 versions of this paper

Date Written: March 20, 2009

Abstract

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, G21

Suggested Citation

Entrop, Oliver and Zeisler, Alexander and Wilkens, Marco, Quantifying the Interest Rate Risk of Banks: Assumptions Do Matter (March 20, 2009). European Financial Management, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1097681

Oliver Entrop (Contact Author)

University of Passau ( email )

Innstrasse 27
Passau, 94032
Germany
+49 851 509 2460 (Phone)
+49 851 509 2462 (Fax)

Alexander Zeisler

Barclays ( email )

5 The North Colonnade
Canary Wharf
London, London E14 4BB
United Kingdom
+44 20 7773 8989 (Phone)

HOME PAGE: http://www.barclays.com

Marco Wilkens

University of Augsburg ( email )

Universitaetsstr. 16
Augsburg, 86159
Germany
+49 821 598 4124 (Phone)
+49 821 598 4223 (Fax)

HOME PAGE: http://www.wiwi.uni-augsburg.de/bwl/wilkens/team/wilkens_marco/

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