Systemic Interest Rate and Market Risk at U.S. Banks

Journal of Business Economics (ZfB) 2016, 86 (8), 933-961

36 Pages Posted: 26 Nov 2015 Last revised: 18 Mar 2018

See all articles by Ludwig von la Hausse

Ludwig von la Hausse

University of Augsburg

Martin Rohleder

University of Augsburg

Marco Wilkens

University of Augsburg

Date Written: October 4, 2015

Abstract

This paper is the first to quantify and analyze the dynamics of market risk (MR) and interest rate risk (IRR) of the system of US bank holding companies (BHCs) based on time-varying risk exposures estimated using the Kalman filter. These dynamics can be explained to a considerable degree by the development of the macro economy as well as by the state and structure of the banking system itself. We further determine each single bank’s contribution to the banking system’s MR and IRR and show that single banks have non-trivial leverage over the banking system’s systematic risk exposure at specific times. Such risk contributions can be explained by banks’ financing or deposit base, maturity transformation intensity and interest income, earnings diversification and the liquidity of banks’ holdings. Our findings thus facilitate better oversight and management of the systematic risks inherent in the banking system.

Keywords: interest rate risk, market risk, banks, banking system

JEL Classification: G21, E43, G14

Suggested Citation

von la Hausse, Ludwig and Rohleder, Martin and Wilkens, Marco, Systemic Interest Rate and Market Risk at U.S. Banks (October 4, 2015). Journal of Business Economics (ZfB) 2016, 86 (8), 933-961. Available at SSRN: https://ssrn.com/abstract=2695315 or http://dx.doi.org/10.2139/ssrn.2695315

Ludwig Von la Hausse

University of Augsburg ( email )

Universitaetsstrasse 16
Augsburg, 86159
Germany
+498215984118 (Phone)
+498215984223 (Fax)

Martin Rohleder (Contact Author)

University of Augsburg ( email )

Universitaetsstr. 16
Augsburg, 86159
Germany
+49 821 598 4120 (Phone)

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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