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COMMERCIAL BANK RISK: MARKET, INTEREST RATE, AND FOREIGN EXCHANGE
Author(s) -
Wetmore Jill L.,
Brick John R.
Publication year - 1994
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1994.tb00167.x
Subject(s) - interest rate , foreign exchange risk , interest rate parity , interest rate risk , exchange rate , monetary economics , economics , loan , interest rate derivative , market risk , foreign exchange , foreign exchange market , covered interest arbitrage , credit risk , business , sample (material) , risk premium , financial system , actuarial science , econometrics , finance , chemistry , chromatography
Because of recent structural changes in the balance sheets of banks, regulatory changes in the risk‐based capital requirements, and the recent adoption of mark‐to‐market accounting changes, interest rate risk remains an important issue for commercial banks and an important regulatory concern. Market, interest rate, and foreign exchange risk are estimated for a sample of commercial banks using ordinary least squares from 1986 to 1991. Consistent with earlier studies, the estimated coefficients continue to be unstable. We find that interest rate risk decreases and foreign exchange risk increases. Moreover, the results differ depending on practices of the bank (money center, superregional, or regional). We find evidence consistent with earlier studies that theorize foreign exchange risk is explained by unhedged foreign loan exposure.