Banks&Apos; Risk Exposures

This paper studies U.S. banks' exposure to interest rate and credit risk. We exploit the factor structure in interest rates to represent many bank positions in terms of simple factor portfolios. This approach delivers time varying measures of exposure that are comparable across banks as well as across the business segments of an individual bank. We also propose a strategy to estimate exposure due to interest rate derivatives from regulatory data on notional and fair values together with the history of interest rates. We use the approach to document stylized facts about the recent evolution of bank risk taking.

[1]  Vivian Z. Yue,et al.  Interest Rate Swaps and Corporate Default , 2013, SSRN Electronic Journal.

[2]  Augustin Landier,et al.  Banks' Exposure to Interest Rate Risk and the Transmission of Monetary Policy , 2013, SSRN Electronic Journal.

[3]  Nina Boyarchenko,et al.  Intermediary Leverage Cycles and Financial Stability , 2012 .

[4]  David Greenlaw,et al.  Stressed Out: Macroprudential Principles for Stress Testing , 2012 .

[5]  Darrell Duffie,et al.  Systemic Risk Exposures: a 10-by-10-by-10 Approach , 2011 .

[6]  Michael W. Faulkender,et al.  The Two Sides of Derivatives Usage: Hedging and Speculating with Interest Rate Swaps , 2011, Journal of Financial and Quantitative Analysis.

[7]  B. Kelly,et al.  Too-Systemic-To-Fail: What Option Markets Imply About Sector-Wide Government Guarantees , 2011 .

[8]  Markus K. Brunnermeier,et al.  Risk Topography , 2011, NBER Macroeconomics Annual.

[9]  Stijn van Nieuwerburgh,et al.  Guaranteed to Fail: Fannie Mae, Freddie Mac, and the Debacle of Mortgage Finance , 2011 .

[10]  A. Krishnamurthy,et al.  Balance Sheet Adjustments during the 2008 Crisis , 2010 .

[11]  Martin Schneider,et al.  Interest Rate Risk in Credit Markets , 2010 .

[12]  L. Pedersen,et al.  Measuring Systemic Risk , 2010 .

[13]  René M. Stulz,et al.  How Much Do Banks Use Credit Derivatives to Hedge Loans? , 2009 .

[14]  Sevin Yeltekin,et al.  Fiscal hedging with nominal assets , 2008 .

[15]  Haitao Li,et al.  Reduced-Form Valuation of Callable Corporate Bonds: Theory and Evidence , 2006 .

[16]  Franklin Allen,et al.  Do Financial Institutions Matter , 2001 .

[17]  S. Kothari,et al.  Are Corporations Reducing or Taking Risks with Derivatives? , 2001, Journal of Financial and Quantitative Analysis.

[18]  Andrew Ang,et al.  A No-Arbitrage Vector Autoregression of Term Structure Dynamics with Macroeconomic and Latent Variables , 2000 .

[19]  D. Duffie,et al.  Modeling term structures of defaultable bonds , 1999 .

[20]  M. Flannery,et al.  Asset pricing, time-varying risk premia and interest rate risk , 1997 .

[21]  Mohan Venkatachalam,et al.  Value-relevance of banks' derivatives disclosures , 1995 .

[22]  M. Flannery,et al.  Market Evidence on the Effective Maturity of Bank Assets and Liabilities , 1984 .

[23]  Christopher M. James,et al.  The Effect of Interest Rate Changes on the Common Stock Returns of Financial Institutions , 1984 .

[24]  R. Benjamin,et al.  Federal Reserve Bank of New York Staff Reports , 2013 .

[25]  Bryan Kelly.  Too-Systemic-ToFail : What Option Markets Imply About Sector-wide Government Guarantees ∗ , 2011 .

[26]  Martin T. Wells,et al.  Exploring an Adaptive Metropolis Algorithm , 2010 .

[27]  Ben Z. Schreiber.  The Working Paper Series is made possible by a generous , 1996 .

[28]  T. Adrian,et al.  Federal Reserve Bank of New York Staff Reports Procyclical Leverage and Value-at-risk , 2022 .

[29]  P. Glasserman,et al.  Federal Reserve Bank of New York Staff Reports Procyclical Leverage and Value-at-risk Procyclical Leverage and Value-at-risk , 2022 .