Interest and Credit Risk Management in German Banks: Evidence From a Quantitative Survey

Deutsche Bundesbank Discussion Paper No. 02/2020

32 Pages Posted: 26 Feb 2020

See all articles by Vanessa Drager

Vanessa Drager

Deutsche Bundesbank

Lotta Heckmann-Draisbach

Deutsche Bundesbank

Christoph Memmel

Deutsche Bundesbank

Date Written: February 18, 2020

Abstract

Using unique data of a survey among small and medium-sized German banks, we analyze various aspects of risk management over a short-term and medium-term horizon. We especially analyze the effect of a 200-bp increase in the interest level. We find that, in the first year, the impairments of banks' bond portfolios are much larger than the reductions in their net interest income, that banks attenuate the resulting write-downs by liquidating hidden reserves and that banks which use interest derivatives have lower impairments in their bond portfolios. In addition, we find that banks' exposures to interest rate risk and to credit risk are remunerated, that banks' try to stabilize the mid-term net interest margin with exposure to interest rate risk and that they act as if they have a risk budget which they allocate either to interest rate risk or credit risk.

Keywords: net interest margin, bond portfolio, interest rate risk, credit risk

JEL Classification: G21

Suggested Citation

Drager, Vanessa and Heckmann-Draisbach, Lotta and Memmel, Christoph, Interest and Credit Risk Management in German Banks: Evidence From a Quantitative Survey (February 18, 2020). Deutsche Bundesbank Discussion Paper No. 02/2020, Available at SSRN: https://ssrn.com/abstract=3540397 or http://dx.doi.org/10.2139/ssrn.3540397

Vanessa Drager (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Lotta Heckmann-Draisbach

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Christoph Memmel

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
24
Abstract Views
207
PlumX Metrics