Time varying exposure to interest rate risk and Bank of England operational independence: Evidence from bank and life insurance companies

This study by adopting rolling regression techniques investigate whether bank and life insurance equity returns sensitivity to long term unanticipated interest rate changes has been changed since the Bank of England was granted operational independence in May 1997. Our results indicate that there may well have been changes in the way banks and life insurance companies manage interest rate risk. In particular, we document that since a more transparent monetary policy actions adopted from Bank of England the magnitude of interest rate risk exposure has changed and its significance reduced. These results should be of much banking and policy interest. JEL classification: G21, G28 E44,