Interest Rate Risk and Banking Intermediation: An Asset and Liability Management Perspective (Il Rischio di Tasso di Interesse Nell'Economia Degli Intermediari Bancari: Una Prospettiva di Asset & Liability Management)
Studi e Note di Economia Firenze, No. 3, pp. 113-138, 2005
Posted: 12 Jan 2012 Last revised: 7 Jun 2012
Date Written: September 1, 2005
Interest rate risk is the exposure of a bank's financial condition to adverse movements in interest rates. Changes in interest rates affect a bank's earnings by changing its net interest income and also affect the underlying value of the bank's assets, liabilities and off-balance sheet instruments. This has given rise to two separate, but complementary, perspectives for assessing a bank's interest rate risk exposure: earnings perspective and economic value perspective. Changes in banks’ competitive environment, products, and services have heightened the importance of prudent interest rate risk management. The paper aims to review the different interest rate risk management models proposed by the Literature, through the perspective of asset and liability management.
Keywords: interest rate risk, risk management, asset and liability management, risk exposure, bank balance sheet
JEL Classification: G01, G20, G21, G28, G30, G32, M01, M02, M10, M15
Suggested Citation: Suggested Citation