Life insurers typically grant policyholders a surrender option. We demonstrate that the resulting lapse risk could materialise in the form of a "policyholder run" if interest rates were to increase sharply. An inverse stress test based on a unique set of regulatory panel data suggests that...

Interest rates have been very low for several years, which is particularly challenging for life insurers. Since 2001, German life insurers have had to set an additional reserve due to low interest rates to ensure the protection of policyholders. However, the method introduced at that time to...

Using unique data of a survey among small and medium-sized German banks, we analyze various aspects of risk management over a short-term and medium-term horizon. We especially analyze the effect of a 200-bp increase in the interest level. We find that, in the first year, the impairments of...

This paper describes the first thorough analysis of the interest risk of German banks on an individual bank level. We develop a new method that is based on time series of accountingbased data to quantify the interest risk of banks and apply it to analyze the German banking system. We find...

We use a unique dataset of German banks' exposure to interest rate risk to derive the following statements about their exposure to this risk and their earnings from term transformation. The systematic factor for the exposure to interest rate risk moves in sync with the shape of the term...

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...