Banks Exposure to Interest Rate Risk and The Transmission of Monetary Policy
We show empirically that banks' exposure to interest rate risk, or income gap, plays a crucial role in monetary policy transmission. In a first step, we show that banks typically retain a large exposure to interest rates that can be predicted with income gap. Secondly, we show that income gap also predicts the sensitivity of bank lending to interest rates. Quantitatively, a 100 basis point increase in the Fed funds rate leads a bank at the 75th percentile of the income gap distribution to increase lending by about 1.6 percentage points annually relative to a bank at the 25th percentile.
Year of publication: |
2013-02
|
---|---|
Authors: | Landier, Augustin ; Sraer, David ; Thesmar, David |
Institutions: | Toulouse School of Economics (TSE) |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Going for broke: New Century Financial Corporation, 2004-2006
Landier, Augustin, (2010)
-
Banking Deregulation and The Rise in House Price Comovement
Landier, Augustin, (2013)
-
The risk-Shifting Hypothesis : Evidence from Subprime Originations
Landier, Augustin, (2011)
- More ...