Sensitivity of Bank Balance Sheets to Benchmark Rate Changes

STUDIESREPORT OF THE WORKINGGROUP ON THE SENSITIVITY OFBANK BALANCE SHEETS TOBENCHMARK RATE CHANGES1(1992-1993 DATA)The working group on the sensitivity of bank balance sheets tochanges in benchmark rates was convened by the Banque de Franceunder the chairmanship of André Icard, Head of the ResearchDepartment. It comprises representatives of credit institutions andthe Banque de France.The group's objective is to improve the understanding of howmonetary policy decisions regarding benchmark rates affect the realeconomy, in particular through the reactions of the banking system.The role of credit institutions in providing financing for theeconomy has remained preponderant despite the transformations ofthe 1980s, which thoroughly modified the environment in whichbanks operate. The lending rates applied by financial institutions aretherefore still an essential economic variable, and as a result, creditinstitutions' reactions to changes in the level and structure ofbenchmark interest rates are a key factor in the transmission ofmonetary policy effects.JEAN-PIERRE BARILLASMonetary Resarch and Statistics DivisionMonetary Analysis and Statistics UnitThe objective of the working group differs from that of previous work on the subject. Its intention isnot to assess the interest rate risk exposure of credit institutions, nor to measure the effect of variationsin interest rates on their results or on the structure of their balance sheets.1This study was ...