Financial intermediation and interest rate risk

Zagonov, Maxim (2011). Financial intermediation and interest rate risk. (Unpublished Doctoral thesis, City University London)

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Abstract

This thesis analyses the link between interest rate risk faced by financial intermediaries in the G-10 countries, their balance sheet composition and national bank regulation. The regulatory authorities both in the US and in Europe increasingly emphasise the issue of bank interest rate exposure. The importance of this topic is also reasserted by recent developments in the monetary environment. The thesis offers three major contributions to the area.

First, it empirically investigates the interest rate risk exposure of financial intermediaries across a large international data sample over the 1997 to 2009 time period. The results verify the importance of interest rate exposure for the majority of analysed institutions, with statistical inferences being robust to the choice of interest rate proxy, time period, and the adopted econometric methodology.

Second, this research examines the underlying determinants of bank interest rate risk. Both company and market specific information is considered in the analysis. The findings suggest that national regulatory and supervisory characteristics, and notably international diversity among these provisions, are as important as firm-level accounting variables in explaining the interest rate exposures of individual banks.

Finally, this work empirically addresses the impact of securitization on bank interest rate risk. In particular, the research questions whether securitization is conducive to the optimal hedging of bank interest rate risk, or is merely a funding source enabling these companies to pursue more profitable but riskier projects. The reported results imply that banks resorting to asset securitization do not, on average, achieve an unambiguous reduction in their exposure to the term structure developments.

Item Type: Thesis (Doctoral)
Additional Information: © 2011 Maxim Zagonov
Subjects: H Social Sciences > HG Finance
Divisions: Cass Business School > Faculty of Finance
City University London PhD theses
URI: http://openaccess.city.ac.uk/id/eprint/1189

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