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Interest Rate Risk

Published online by Cambridge University Press:  06 April 2009

Roger N. Craine  and
James L. Pierce
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Extract

Much of the literature on the adequacy of bank capital is concerned with the role of such factors as default risk and faulty management. These factors are important but they neglect the role that purely stochastic elements can play in affecting the capital of a well-managed bank, even if it is free of default risk. Because banks raise funds by issuing liabilities with different maturities than the assets they acquire, changes in the interest rates paid on these liabilities relative to the interest rates on assets will affect earnings and, hence, bank capital.

Type
IV. Result of a Study of Risk and Capital Adequacy in Banks
Information
Journal of Financial and Quantitative Analysis , Volume 13 , Issue 4 , November 1978 , pp. 719 - 732
Copyright
Copyright © School of Business Administration, University of Washington 1978

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References

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