Bank Valuation and Value Based Management: Deposit and Loan Pricing, Performance Evaluation, and Risk, 2nd Edition, 2nd Edition

CHAPTER 19

The Control of Interest-Rate Risk on the Banking Book, Part 2: The Economic Value at Risk

The focus on the impact of a change in interest rates on the net interest margin and the income statement is understandable because bank analysts focus very much on return on equity (ROE) and earnings per share (EPS) as measures of performance. But these measures create a risk of myopia if management focuses only on short-term profits. Following the savings and loan association (S&L) crisis in the United States in the early 1990s, increasing attention has focused on the impact of interest-rate changes on the economic value of the equity of a bank. ...