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 …

We show that maturity transformation does not expose banks to significant interest rate risk|it hedges it. This is due … to banks' deposit franchise. The deposit franchise gives banks substantial market power over deposits, allowing them to … pay deposit rates that are low and insensitive to market interest rates. Maintaining this power requires banks to incur …

) cannot keep pace with asset growth and banks turn to other funding sources (non-core liabilities) to finance their lending …

system. We substantiate this argument with three didactic findings: (1) commercial banks in general were prone to engage in … channeling risky entrusted loans; (2) shadow banking through entrusted lending masked small banks' exposure to balance …-sheet risks; and (3) two well-intended regulations and institutional asymmetry between large and small banks combined to give …

credit derivative spreads of Japanese banks. Although the Japan premium in the euro-dollar market seemed to have virtually … disappeared since April 1999, credit and default risks of Japanese banks has not necessarily disappeared. Other indicators show … varying degrees of fragility among Japanese banks in 1998-2001. Banking stock prices continue to slide compared to the market …

Bank risk-based capital (RBC) standards require banks to hold differing amounts of capital for different classes of … decomposes loan risk into term structure, default, and market risk. One implication of our findings is that although banks have …

of log-normally distributed asset values is not appropriate for banks. Typical bank assets are risky debt claims, which … consequences for banks' risk dynamics and distance to default estimation. Due to the payoff non-linearity, bank asset volatility … volatility is assumed to be constant can severely understate banks' default risk in good times when asset values are high. Bank …

This paper studies U.S. banks' exposure to interest rate and credit risk. We exploit the factor structure in interest … exposure that are comparable across banks as well as across the business segments of an individual bank. We also propose a …