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Interest Rate Risk and Rising Maturities
Abstract
Banks have been steadily increasing their exposure to interest rate risk since the end of the financial crisis, though large and small banks are doing so in different ways. This Commentary examines the maturity structure of assets and liabilities to identify the underlying factors responsible for the rise in interest rate risk and the differences between large and small banks.
... As commercial banks can sustain losses in business if rates fluctuate unexpectedly, managing the interest rate risk is critical for a bank to survive (Arida, Bacha, & Resende, 2006). Hence, financial regulators ought to evaluate and control it cautiously as interest rate spikes can devastate the entire financial system (William & Mahmoud, 2014). ...
Recently, considerable concern has arisen over the complex financial markets, which are inclined to require more individual responsibility. Accordingly, students have to bear more responsibility for their financial management. Nevertheless, in a sluggish economy with high unemployment, the commercial events during the last decade have rendered the transition into financial independence more challenging for social freshmen. In addition, some statistical information has revealed the negative outgrowth that occurred in the wake of student loans and the reduction of beginning salaries. Given the aforementioned hidden risks of finance and the importance of money management, we thus endeavored to investigate the factors students consider when choosing financial tools. For the sake of providing students with information for reference, we delivered a similar questionnaire to professionals in the field. We used the received data to examine the gap between experts’ views and students’ perceptions and then inferred possible reasons for the comparison results.The AHP serves as the chief instrument for calculating relative importance and weighting the significance of the factors. We sent the questionnaires to 140 college students at National Chiayi University and 20 professionals in the financial field and 20 professionals in financial field. The general results indicate that opinions differ among individual students, and opinions of students are rather different from those of the experts; thus, we propose that financial institutions should take different opinions into consideration when designing their financial products.
Average interest rate risk in the banking system has been increasing since the end of the financial crisis and is almost back to its pre-recession level. But the increase has not occurred uniformly at large and small banks. At big banks, risk, while increasing, hasn't yet reached its pre-recession high. It's in small banks where we see a steep rise in interest rate risk. The big banks' exposure is being driven mainly by their liabilities. At small banks, it is coming from both their assets and liabilities.