Why Do Banks Bear Interest Rate Risk?

Why do Banks Fail ?

Banks advance loans in the absence of precise knowledge in relation to the outcome of borrowers’ projects. Consequently, uncertainty in relation to loan repayment emerges. Thus, banks introduce the ‘credit standard’ as insurance against loans, so that should borrowers’ projects fail, borrowers have an alternative means of honouring their debt obligations. It is argued in this paper that in the ...

Why do UK banks securitize?

The eight years from 2000 to 2008 saw a rapid growth in the use of securitization by UK banks. We aim to identify the reasons that contributed to this rapid growth. The time period (2000 to 2010) covered by our study is noteworthy as it covers the pre-…nancial crisis creditboom, the peak of the …nancial crisis and its aftermath. In the wake of the …nancial crisis, many governments, regulators a...

Interest Rate Risk

Are Interest Rate Swaps Used to Manage Banks’ Earnings?

Previous research has shown that loan loss provisions and security gains and losses are used to manage banks’ net income. However, these income components are reported below banks largest operating component, net interest income (NII). This study extends the literature by examining whether banks exploit the accounting permitted under past and current hedge accounting standards to manage NII by ...

Interest rate derivatives at commercial banks: An empirical investigation ¬リニ

I analyze the effects of bank characteristics and macroeconomic shocks on interest rate riskmanagement behavior of commercial banks. My findings are consistent with hedging theories based on cost of financial distress and costly external financing. Banks with higher probability of financial distress manage their interest rate risk more aggressively, both by means of on-balance sheet and offbala...