Banks have been steadily increasing their exposure to interest rate risk since the end of the financial crisis, though large and small banks are doing so in different ways. This Commentary examines the maturity structure of assets and liabilities to identify the underlying factors responsible for the rise in interest rate risk and the differences between large and small banks.
Tracking Recent Levels of Financial Stress
The Cleveland Financial Stress Index (CFSI) fluctuated between grades 1 and 2 throughout the third quarter of 2014. As of October 9, the index stood at −0.426, below the historical high in December 2008 and above the historical low in January 2014.
Regional Bank Health: Trends in Net Charge-Offs
According to a survey by the American Bankers Association, regional banking organizations (RBOs) operate in all 50 states, and in 2012 they were responsible for more than $1.7 trillion in lending to the communities in which they operated. Even though no one regional bank is likely to be so large as to be systemically important—RBOs are generally considered to be bank holding companies with between $10 billion and $50 billion in assets—their collective impact on the US economy could be substantial. For this reason, we want to assess the health of RBOs’ loan portfolios by analyzing their net charge-off behavior over the past two years.