tailieunhanh - Determinants of bank interest margins: impact of maturity transformation

The paper also outlines a number of principles for use by supervisory authorities when evaluating banks' interest rate risk management. This paper strongly endorses the principle that banks’ internal measurement systems should, wherever possible, form the foundation of the supervisory authorities’ measurement of and response to the level of interest rate risk. It provides guidance to help supervisors assess whether internal measurement systems are adequate for this purpose, and also provides an example of a possible framework for obtaining information on interest rate risk in the banking book in the event that the internal measurement system is not judged to be adequate | DEUTSCHE BUNDESBANK EUROSYSTEM Discussion Paper Deutsche Bundesbank No 17 2012 Determinants of bank interest margins impact of maturity transformation Oliver Entrop University of Passau Christoph Memmel Deutsche Bundesbank Benedikt Ruprecht University of Augsburg Marco Wilkens University of Augsburg Discussion Papers represent the authors personal opinions and do not necessarily reflect the views of the Deutsche Bundesbank or its staff. Editorial Board Klaus Dullmann Heinz Herrm ann Christoph Memmel Deutsche Bundesbank Wilhelm-Epstein-StraBe 14 60431 Frankfurt am Main Postfach 10 06 02 60006 Frankfurt am Main Tel 49 69 9566-0 Telex within Germany 41227 telex from abroad 414431 Please address all orders in writing to Deutsche Bundesbank Press and Public Relations Division at the above address or via fax 49 69 9566-3077 Internet http Reproduction permitted only if source is stated. ISBN 978-3-86558-827-2 Printversion ISBN 978-3-86558-8 28-9 Internetversion Abstract This paper explores the extent to which interest risk exposure is priced in bank margins. Our contribution to the literature is twofold First we present an extended model of Ho and Saunders 1981 that explicitly captures interest rate risk and returns from maturity transformation. Banks price interest risk according to their individual exposure separately in loan and deposit rates but reduce these charges when they expect returns from maturity transformation. Second using a comprehensive dataset covering the German universal banks between 2000 and 2009 we test the model-implied hypotheses not only for the commonly investigated net interest income but additionally for interest income and expenses separately. Controlling for earnings from bank-individual maturity transformation strategies we find all banks to charge additional fees for macroeconomic interest volatility exposure. Microeconomic on-balance interest risk exposure from maturity transformation however only affects the smaller .