Sensitivity Matching Through Market Power: Bank Hedging in the Age of Low Interest Rates
Sammanfattning: We replicate the paper of Drechsler et al. (2017a) who find that banks are able to hedge against interest rate risk exposure through maturity transformation. Our results confirm their findings prior to the financial crisis that the interest sensitivities of income and expenses closely follow one another, resulting in an insensitive ROA. In the following period of low interest rates banks are unable to use maturity transformation as a hedge. The interest income exposure turns negative and banks can therefore not match the sensitivity sufficiently to hedge their exposure.
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