Banks' Risk Exposures

Juliane Begenau, Monika Piazzesi, Martin Schneider

NBER Working Paper No. 21334
Issued in July 2015
NBER Program(s):Asset Pricing, Corporate Finance, Economic Fluctuations and Growth, Monetary Economics

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.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w21334