Which interest rate scenario is the worstone for a bank?Evidence from a tracking bank approach forGerman savings and cooperative banks

Interest income is the most important source of revenue for most of thebanks. The aim of this paper is to assess the impact of different interest ratescenarios on the banks' interest income. As we do not know the interest ratesensitivity of real banks, we construct for each bank a portfolio with a similarcomposition of its assets and liabilities, called 'tracking bank'. We evaluate theeffect of 260 historical interest rate shocks on the tracking banks of Germansavings banks and cooperative banks. It turns out that a sharp decrease inthe steepness of the yield curve has the most negative impact on the banks'interest income....