PDF《William B English》

s interest rate risk following either of these two perspectives would require detailed information about a number of possible sources of interest rate risk (see the discussion in the box Sources of interest rate risk on page 69). Clearly, one would need information on the pricing of the bank'

s assets and liabilities, including repricing periods and base rates. Moreover, this data would need to be supplemented by information on the adjustments that the bank is likely to make to the rates on assets and liabilities that it can reprice at its discretion following changes in market rates. One would also require information on the likelihood that bank customers would choose to repay loans or withdraw funds early as a result of changes in market rates. Finally, one would need information sufficient to allow an evaluation of other potential sources of interest rate risk, including the interest sensitivity of fee income and off-balance sheet exposures. In addition to its inherent complexity, such a direct approach is difficult for the researcher to implement because the necessary information is lacking. There is a paucity of data on the repricing intervals of banks'

assets and liabilities in many countries. In addition, while there has been considerable study of the pricing of some types of deposits and loans, such information is hardly complete.

4 Finally, the extent to which bank customers take advantage of the options embedded in some bank contracts is generally hard to assess because of a lack of data on such behaviour.

5 4 For recent results, see Banking Supervision Committee (2000).

5 There has been considerable work on the prepayment behaviour of US residential mortgage borrowers, but even here the effects for a particular bank are likely to depend considerably on the specifics of the pool of mortgages held. See, for example, Stanton (1996). Assessing banks'

interest rate risk directly ... ... can require a great deal of information ... ... which researchers may find hard to obtain BIS Quarterly Review, December

2002 69 Sources of interest rate risk Interest rate risk can come in a variety of forms, including repricing risk, yield curve risk and basis risk. A bank will face repricing risk if either the average yield on its assets or that on its liabilities is more sensitive to changes in market interest rates. Such a difference in sensitivity could reflect a number of possible mismatches in the characteristics of assets and liabilities. First, fixed rate assets and liabilities could have different maturities. Second, floating rate assets and liabilities could have different repricing periods, with base rates that have maturities similar to their respective repricing periods (assets that reprice annually based on a one-year rate and liabilities that reprice quarterly based on a three-month rate, for example). Third, floating rate assets and liabilities could have base rates of different maturities (assets that reprice annually based on a long-term rate along with liabilities that reprice annually based on a one-year rate, for example). Fourth, in many countries there are assets and liabilities for which banks can adjust pricing at will (eg savings deposits and some types of retail loans) and the rate-setting policies that banks follow determine the effective repricing behaviour of such instruments. The pricing decisions in these cases will presumably depend on a variety of factors in addition to ma........