Analyzing the Interest Rate Risk of Banks Using Time Series of Accounting-Based Data: Evidence From Germany

This paper describes the frst thorough analysis of the interest risk of German bankson an individual bank level. We develop a new method that is based on time series ofaccounting-based data to quantify the interest risk of banks and apply it to analyze theGerman banking system. We find evidence that our model yields a significantly better fitof banks' internally quantified interest rate risk than a standard approach that relies onone-point-in-time data, and that the interest rate risk differs between banks of different sizeand banking group. Additionally, we find structural differences between trading book andnon-trading book institutions.