Heterogeneity in the Interest Rate Risk Positions of German Savings Banks
Abstract
This study investigates heterogeneity in the interest rate risk positions among German savings banks and its relationship with bank characteristics and performance. Using hand-collected data on the Basel interest rate risk coefficient from publicly available annual reports for the period 2012–2024, we document substantial cross-sectional differences in both contemporaneous and persistent exposure to interest rate risk. These differences are systematically associated with net interest margins (NIMs), return on assets (ROA), and regulatory capital positions. We further show that reductions in interest rate risk have different profitability implications depending on whether they are undertaken above or below the supervisory outlier threshold. Finally, exploiting the first public disclosures of the Supervisory Outlier Test on Net Interest Income (SOT NII) for fiscal year 2024, we show that banks’ earnings sensitivity to interest rate shocks varies markedly across institutions and is linked to prior risk exposure and profitability as well as balance-sheet characteristics.