No abstract

Because of recent structural changes in the balance sheets of banks, regulatory changes in the risk-based capital requirements, and the recent adoption of mark-to-market accounting changes, interest rate risk remains an important issue for commercial banks and an important regulatory concern. Market, interest rate, and foreign exchange risk are estimated for a sample of commercial banks using ordinary least squares from 1986 to 1991. Consistent with earlier studies, the estimated coefficients continue to be unstable. We find that interest rate risk decreases and foreign exchange risk increases. Moreover, the results differ depending on practices of the bank (money center, superregional, or regional). We find evidence consistent with earlier studies that theorize foreign exchange risk is explained by unhedged foreign loan exposure.

Financial institutions, Real-estate, REITs, Bivariate GARCH,

No abstract

The optimal gap of a depository institution is derived using a market value optimization model. The gap is estimated using portfolios of returns on rate-sensitive assets and liabilities and is found to be not significantly different from zero. The estimate is compared to the average gap position of a sample of banks. It is found that the average gap position of a sample of banks is "too positive." This suggests that banks are not showing risk minimization behavior in the positioning of the gap.