This paper surveys the theoretical and empirical literature on interest rate risk in banking. Theoretically, it considers the origins of interest rate risk and its allocation. Interest rate risk is non-diversifiable and does not originate from the banking sector, but from the potential time...

This paper studies the scope for cross-border contagion in the European banking sector using true bilateral exposure data. Using a model of sequential solvency and liquidity cascades in networks, we analyze geographical patterns of loss propagation from 2008 to 2012. We study the distribution of...

We empirically show that adverse selection is a key determinant of banking market structure. Using newly-constructed panel data on all US bank branches over the 1981-2016 period, we study banks' decisions to expand or contract geographically. First, we show that banks are more likely to expand...

Empirically, bank equity value is decreasing in the interest rate. Yet (i) many banks do not hedge interest rate risk and (ii) above 50% of hedging banks use derivatives to increase exposure. We model a bank's capital structure, and show that these facts are consistent with optimal hedging under...