Liquidity Risk and Interest Rate Risk on Banks: Are They Related?

Baldan, Cinzia; Zen, Francesco; Rebonato, Tobia

doi:10.2139/ssrn.2152320

Cited by 6 publications

(8 citation statements)

References 16 publications

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“…In particular, they demonstrate that when a bank reduces its liquidity risk, its interest margin is also reduced. In turn, this event decreases the amount of capital absorbed by the interest rate risk, indicating that liquidity risk is positively correlated with interest rate risk (Baldan et al, 2012).…”

Section: The Relationship Among Credit Interest Rate and Liquidity Rmentioning

confidence: 98%

“…Although the literature has thoroughly debated on both liquidity and interest rate risks, only Baldan et al (2012) have shed light on the integrated management of these risks. In particular, they demonstrate that when a bank reduces its liquidity risk, its interest margin is also reduced.…”

Section: The Relationship Among Credit Interest Rate and Liquidity Rmentioning

confidence: 99%

“…In 2010, the European debt crisis was temporarily controlled through sovereign bailout programs 11 , which were provided jointly by 8 These data are measured with the gross domestic product (GDP) at purchasing-power-parity (PPP) rates by the Intrnational Monetary Fund (IMF). 9 Iran is also among the top 20 economies worldwide since 2002, but it is not included in our sample because all banks in Iran provided by Bankscope are Islamic banks with different operating procedures from other types of banks. Islamic banks adhere to the concepts of Islamic law, and all their banking activities must avoid interest, a concept that is forbidden in Islam.…”

Section: Sample and Data Sourcementioning

confidence: 99%

“…Drehmann et al (2010) further prove that a risk assessment should jointly measure the integrated effect of credit and interest rate risks. Baldan et al (2012) demonstrate that reducing a bank's liquidity risk would lower its interest rate risk. Even though the linkage of any two risk categories among credit, interest rate, and liquidity risks has been examined, no study has analyzed the relation among these risks in the banking sector.…”

Section: Introductionmentioning

confidence: 98%

See 3 more Smart Citations

How do banks make the trade-offs among risks? The role of corporate governance

Chen

Lin

2016

Journal of Banking & Finance

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Section: The Relationship Among Credit Interest Rate and Liquidity Rmentioning

confidence: 98%

Section: The Relationship Among Credit Interest Rate and Liquidity Rmentioning

confidence: 99%

Section: Sample and Data Sourcementioning

confidence: 99%

Section: Introductionmentioning

confidence: 98%

See 2 more Smart Citations

How do banks make the trade-offs among risks? The role of corporate governance

Chen

Lin

2016

Journal of Banking & Finance

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“…Hellemons [2012] proposes the optimization model which maximizes the retained earnings and minimizes conditional expected loss at a certain confidence level giving the banks the opportunity to choose a portfolio allocation that fits their risk appetite. Baldan, Zen and Rebonato [2012] launched the hypothesis that there is a direct relationship such that reducing the exposure to the liquidity risk induces a reduction in the interest rate risk, as well -consequently, it is possible to establish a position which minimizes the exposure to both risks.…”

Section: Introductionmentioning

confidence: 99%

Balance Sheet Shaping Through a Decision Model and Funds Transfer Pricing

Lubinska¹

2017

Prace Naukowe Uniwersytetu Ekonomicznego we Wrocławiu

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The banking industry is currently facing a number of challenges driven by the regulatory requirements, low or even negative interest rates and margin compression. As a result, active and conscious balance sheet management has increased in importance and banks are required to optimize and allocate resources very precisely to their businesses. There is a clear need for maximization of the assets income, redesign of the funding mix to achieve the lower funding costs and, at the same time, to respect regulatory requirements. This article verifies the hypotheses that the application of the optimization technique improves the management of the banking book in terms of quantifiable impact on a bank's P&L and that the funds transfer pricing (FTP) process could be used as a mean to achieve the target position of a bank. It proposes a two-step approach to prove the above hypotheses, i.e. the application of the decision model and the FTP process. In addition, the article provides the reader with the main concepts of the FTP process, FTP landscape and details regarding the Balance Sheet shaping.

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Effects of financial statement and macroeconomic factors on risk measures of banks in India

Banerjee

Gupta²,

Das³

2022

IJFBS

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This paper aims to analyse the effects of financial statement indicators and off-balance sheet items affecting risk measures among Indian banks employing both panel data regression and a non-parametric decision tree approach. We explore the effects of bank size, leverage, exposure to contingent liabilities including off-balance sheet derivatives usage and macroeconomic factors on risk measures for banks. In this paper, it is also aimed to examine the effects of the major financial liberalization policy period in the domestic market in India that started in the mid-1990s and ended around 2004 as well as impacts of the 2008 global financial crisis on the risk measures of banks operating in India. As risk measures, we present a comparative analysis of liquidity, solvency, and interest rate risk measures of Indian banks across public (government) and private ownership categories. Main findings from our study demonstrate (i) significant impact of capital adequacy and the bank size on all the risk measures, (ii) contingent liabilities (including derivatives usage) at banks is observed to significantly impact the asset management measure of liquidity risk and the solvency risk of banks, (iii) GDP growth is observed to impact the asset management and liability management measure of liquidity risk, (iv) the global financial crisis is found to have a significant impact on the liquidity risk measures and interest rate risk, but a weak effect on solvency risk of Indian banks, (v) bank ownership category (government owned versus private sector banks) is observed to have a significant impact on all the risk measures, and finally (vi) financial liberalization reforms had a highly significant effect on the liquidity risk at banks.

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Liquidity Risk and Interest Rate Risk on Banks: Are They Related?

Cited by 6 publications

References 16 publications

How do banks make the trade-offs among risks? The role of corporate governance

How do banks make the trade-offs among risks? The role of corporate governance

Balance Sheet Shaping Through a Decision Model and Funds Transfer Pricing

Effects of financial statement and macroeconomic factors on risk measures of banks in India

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