Quantifying the Interest Rate Risk of Banks: Assumptions Do Matter

18 Pages Posted: 21 Oct 2009

See all articles by Oliver Entrop

Oliver Entrop

University of Passau

Marco Wilkens

University of Augsburg

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This paper analyses the robustness of the standardised framework proposed by the Basel Committee on Banking Supervision (2004b) to quantify the interest rate risk of banks. We generalise this framework and study the change in the estimated level of interest rate risk if the strict assumptions of the standardised 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 standardised framework in its current specification should be treated with caution when used for supervisory and risk management purposes.

Suggested Citation

Entrop, Oliver and Wilkens, Marco, Quantifying the Interest Rate Risk of Banks: Assumptions Do Matter. European Financial Management, Vol. 15, Issue 5, pp. 1001-1018, November 2009. Available at SSRN: https://ssrn.com/abstract=1491793 or http://dx.doi.org/10.1111/j.1468-036X.2009.00509.x

Oliver Entrop (Contact Author)

University of Passau ( email )

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

Marco Wilkens

University of Augsburg ( email )

Universitaetsstr. 16
Augsburg, 86159
+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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