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Bank interest rate risk management and valuation of earnings
Author(s) -
Burke Qing L.,
Warfield Terry D.
Publication year - 2021
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12733
Subject(s) - interest rate risk , interest rate , net interest margin , net interest income , valuation (finance) , business , economics , earnings , financial risk management , risk management , actuarial science , finance , profitability index , return on assets
This paper examines banks’ interest rate risk management and its effects on the persistence and valuation of earnings. We first develop a novel measure of interest rate risk management by incorporating asymmetric changes in interest rates on assets and liabilities in response to market rate changes. Utilising this measure, we document that U.S. bank holding companies with more effective interest rate risk management have more persistent net interest income and a higher valuation of net interest income. This study helps investors and regulators assess banks’ interest rate risk management from the earnings perspective and the sustainability of net interest income.