This paper investigates the size and development of Dutch banks’ interest rate risk positions in the banking book during the period from 2008 to 2015. Interest rate risk positions are rather modest and the income from maturity transformation it generates is only a small proportion of the net interest margin and the return on assets. Interest rate risk positions do, however, vary significantly between banks and over time. In fact, banks adjust their interest rate risk in order to benefit from persistent excess long-term yields. Interest rate risk is negatively related to on-balance sheet leverage and has a U-shaped relation with solvability for banks that do not use derivatives. Banks that receive government assistance during the financial crisis have higher interest rate risk than banks that do not receive assistance.
Keywords: interest rate risk, banks, banking book, hedging, profitability.
JEL classifications: D81, E43, G21.
526 - Bank profitability and risk taking in a prolonged environment of low interest rates: a study of interest rate risk in the banking book of Dutch banks
- DNB Working Papers
Date 4 November 2016