Arbeitspapier
Euro area banks' interest rate risk exposure to level, slope and curvature swings in the yield curve
This paper investigates interest rate risk exposures of listed euro area banks which fall under the Single Supervisory Mechanism (SSM). We analyze the period 2005 to 2014, as it includes times of very low interest rates in which banks may have pursued a more risky maturity transformation strategy. First, we use the Bayesian DCC M-GARCH model to assess banks' stock price sensitivities to principal components of changes in the yield curve describing shifts in its level, slope and curvature. Second, we investigate how these sensitivities vary depending on bank-level characteristics (e.g., balance sheet composition, reliance on interest income). Our findings reveal that, on average, banks benefit from positive level shifts and steepening yield curves. Curvature changes affect banks' share prices as well, particularly in times of crises. Further, these sensitivities change in time and depend heavily on the bank's business model and balance sheet composition. Our analysis reveals that banks with larger balance sheets, higher capital ratios, higher parts of customer loans and lower parts of deposits are particularly sensitive to interest rate movements.
- ISBN
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978-3-95729-387-9
- Language
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Englisch
- Bibliographic citation
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Series: Bundesbank Discussion Paper ; No. 24/2017
- Classification
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Wirtschaft
Bayesian Analysis: General
Model Construction and Estimation
Large Data Sets: Modeling and Analysis
- Subject
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Bayesian DCC M-GARCH model
interest rate risk
maturity transformation
swings in the yield curve
- Event
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Geistige Schöpfung
- (who)
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Foos, Daniel
Lütkebohmert, Eva
Markovych, Mariia
Pliszka, Kamil
- Event
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Veröffentlichung
- (who)
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Deutsche Bundesbank
- (where)
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Frankfurt a. M.
- (when)
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2017
- Handle
- Last update
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10.03.2025, 11:43 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Foos, Daniel
- Lütkebohmert, Eva
- Markovych, Mariia
- Pliszka, Kamil
- Deutsche Bundesbank
Time of origin
- 2017
Other Objects (12)
Euro area banks' interest rate risk exposure to level, slope and curvature swings in the yield curve
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Level, Slope, Curvature: Characterising the Yield Curve in a Cointegrated VAR Model
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The yield curve slope and monetary policy innovations
Why does the yield-curve slope predict recessions?
Level-Slope-Curvature - Fact or Artefact?
Yield curve control
Euro area banks' interest rate risk exposure to level, slope and curvature swings in the yield curve
Euro area banks' interest rate risk exposure to level, slope and curvature swings in the yield curve
Level, slope, curvature of the sovereign yield curve, and fiscal behaviour
Level, Slope, Curvature: Characterising the Yield Curve in a Cointegrated VAR Model
Level, Slope, Curvature: Characterising the Yield Curve in a Cointegrated VAR Model
Level, Slope, Curvature : Characterising the Yield Curve in a Cointegrated VAR Model
Level, Slope, Curvature : Characterising the Yield Curve in a Cointegrated VAR Model
Level, Slope, Curvature: Characterising the Yield Curve in a Cointegrated VAR Model
The yield curve slope and monetary policy innovations
Why does the yield-curve slope predict recessions?
Level-Slope-Curvature - Fact or Artefact?
Yield curve control
Euro area banks' interest rate risk exposure to level, slope and curvature swings in the yield curve
Euro area banks' interest rate risk exposure to level, slope and curvature swings in the yield curve
Level, slope, curvature of the sovereign yield curve, and fiscal behaviour
Level, Slope, Curvature: Characterising the Yield Curve in a Cointegrated VAR Model
Level, Slope, Curvature: Characterising the Yield Curve in a Cointegrated VAR Model
Level, Slope, Curvature : Characterising the Yield Curve in a Cointegrated VAR Model
Level, Slope, Curvature : Characterising the Yield Curve in a Cointegrated VAR Model
Level, Slope, Curvature: Characterising the Yield Curve in a Cointegrated VAR Model
The yield curve slope and monetary policy innovations
Why does the yield-curve slope predict recessions?
Level-Slope-Curvature - Fact or Artefact?