Management of interest rate risk in the banking book of Australian credit unions and building societies.

摘要

The Basel Committee has released a consultative document (Basel (2003)) on themanagement and supervision of interest rate risk (IRR). This document outlines astandardised model to calculate a duration-based proxy for IRR in depository institutionbalance sheets. We utilise this methodology to define an IRR measure which we denoteBIRRM (Basel Interest Rate Risk Measure). It is the change in the value of a financialinstitution produced by a 200 basis-point increase in interest rates at all maturities,relative to Tier I and Tier II capital.This study has three primary objectives. Firstly, we utilise BIRRM to provide anoverview of IRR exposure of Australian Credit Unions and Building Societies (CUBS)over the period September 1997 to September 2007. Secondly, we seek anunderstanding of the relationship between BIRRM and measures of CUBS' interest ratesensitivity over a period of rising interest rates (December 1998 to September 2000) andanother period of falling rates (September 2000 to December 2001). Finally, we seek anunderstanding of the economic factors that influence IRR exposure decisions of CUBSby modelling the determinants of CUBS' IRR exposure.We find that IRR exposure of CUBS is relatively low and, on average, CUBS areexposed to falling interest rates. We also find significant relationships between BIRRMand measures of CUBS' interest rates sensitivity consistent with a priori expectations,supporting the use of the Basel Committee's measure of IRR in identifying CUBS with large IRR exposures. The models examining the determinants of CUBS' IRR haverelatively low explanatory power. There are however significant relationships between anumber of factors and CUBS' exposure to changing rates.