TAILIEUCHUNG - The integrated impact of credit and interest rate risk on banks: an economic value and capital adequacy perspective

Overall, our analysis can be understood as one of the first cross-country empirical studies on the determinants of bank fees and as a contribution to the literature testing the contradictory empirical predictions of the SCP and ES hypotheses regarding the influence of concentration on prices in the banking industry. From the policymaking point of view our contribution sheds light on the issue of whether there are fundamental economic reasons for cross-country differences in bank fees; namely, we show that fees scaled by proxies for purchasing power parity tend to be higher in less developed countries. Last but not least,. | Working Paper no. 339 The integrated impact of credit and interest rate risk on banks an economic value and capital adequacy perspective Mathias Drehmann Steffen Sorensen and Marco Stringa January 2008 Bank of England The integrated impact of credit and interest rate risk on banks an economic value and capital adequacy perspective Mathias Drehmann Steffen Sorensen Marco Stringa Working Paper no. 339 Mathias Drehmann Financial Stability Bank of England Threadneedle Street London EC2R 8AH. Email Steffen Sorensen Monetary Analysis Bank of England Threadneedle Street London EC2R 8AH. Email steffen. sorensen@ .uk Marco Stringa Monetary Analysis Bank of England Threadneedle Street London EC2R 8AH. Email marco. stringa@bankofengland. The views and analysis expressed in this paper are those of the authors and do not necessarily reflect those of the Bank of England. All errors remain our responsibility. We would like to thank Matt Corder and Chris Kubelec for providing us with the impact of the stress scenario on default probabilities and the risk-free yield curve and Greg Dudley-Smith and Ruth Yu for excellent research assistance. We are grateful to Viral Acharya Thomas Breuer Klaus Duellmann Prasanna Gai Andy Haldane Glenn Hoggarth David Lando Jose A. Lopez Stam Maes Darren Pain Til Schuermann Phil Strahan and Martin Summer for their useful comments. We would also like to thank the seminar participants at the Bank of England the Bank of Austria s OeNB the 2006 Money Macro and Finance conference the 2006 Risk Management and Regulation in Banking workshop hosted by the Basel Committee on Banking Supervision and the 2007 Interaction of Market and Credit Risk conference hosted by the Deutsche Bundesbank. This paper was finalised on 05 July 2007. The Bank of England s working paper series is externally refereed. Information on the Bank s working paper series can be found at publications .

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