Premium
Sources of Bank Interest Rate Risk
Author(s) -
Fraser Donald R.,
Madura Jeff,
Weigand Robert A.
Publication year - 2002
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/0732-8516.00002
Subject(s) - interest rate , interest rate risk , balance sheet , stock (firearms) , statement (logic) , income statement , economics , business , official cash rate , bank rate , monetary economics , actuarial science , finance , central bank , monetary policy , engineering , mechanical engineering , political science , law
We investigate bank stocks’sensitivity to changes in interest rates and the factors affecting this sensitivity. We focus on whether the exposure of commercial banks to interest rate risk is conditioned on certain balance sheet and income statement ratios. We find a significantly negative relation between bank stock returns and changes in interest rates over the period 1991–1996. We also find that bank characteristics measured from basic financial statement information explain bank stocks’sensitivity to interest rate changes. These results suggest that bank managers, analysts, and regulators can use this information to assess the relative risk exposure of banks.