Maturity Transformation and Interest Rate Risk in Large European ...

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through profit or loss [IAS 39.9]. AFS assets are measured at fair value in the balance sheet. Fairvalue changes on AFS assets are recorded directly in equity, through the statement of changesin equity, except for interest on AFS assets (which is recorded in income on an effective yieldbasis), impairment losses and (for interest-bearing AFS debt instruments) foreign exchange gainsor losses. The cumulative gain or loss that has been recognised in equity is recognised in profitor loss when an available-for-sale financial asset is derecognised [IAS 39.55(b)].Loans and receivables These are non-derivative financial assets with fixed or determinable paymentsthat are not quoted in an active market, other than those held at fair value throughprofit or loss or as available-for-sale. Loans and receivables for which the holder may not recoversubstantially all of its initial investment, other than because of credit deterioration, should beclassified as available-for-sale [IAS 39.9]. Loans and receivables are measured at amortised cost[IAS 39.46(a)].Held-to-maturity investments These are non-derivative financial assets with fixed or determinablepayments that an entity intends and is able to hold to maturity and that do not meet the definitionof loans and receivables and are not designated on initial recognition as assets at fair value throughprofit or loss or as available for sale. Held-to-maturity investments are measured at amortisedcost. If an entity sells a held-to-maturity investment other than in insignificant amounts or as aconsequence of a non-recurring, isolated event beyond its control that could not be reasonablyanticipated, all of its other held-to-maturity investments must be reclassified as available-for-salefor the current and next two financial reporting years [IAS 39.9]. Held-to-maturity investmentsare measured at amortised cost [IAS 39.46(b)].2.1.4 Accounting valuation methods for financial liabilitiesIAS 39 recognises two classes of financial liabilities: [IAS 39.47]Financial liabilities at fair value through profit or loss This category has two subcategories:• Designated: a financial liability that is designated by the entity as a liability at fair valuethrough profit or loss upon initial recognition.• Held for trading: a financial liability classified as held for trading, such as an obligation forsecurities borrowed in a short sale, which have to be returned in the future.Financial liabilities measured at amortised cost using the effective interest method This categoryincludes, for example, hybrid and subordinated debt securities.2.2 Maturity data for all assets and liabilitiesAsset and liability maturities, where available, are classified in the financial statements into four‘buckets’: on demand, up to three month, three to twelve month, one to five years and more than fiveyears. Although not all banks provide all the information required for our data collection exercise, therate of coverage on our asset and liability maturity data in 2011 is of the order 80%. 15 The coveragerate of our maturity data in 2011 for loan contracts only is 82%, which compares favourably with 70%for the standard data provider SNL Financial in the same year. Our maturity data also agree closelywith the SNL Financial maturity data, where they overlap. In particular, for the banks with totalloans in 2011 appearing in both datasets, the ratio of our exposure to the exposure in SNL Financialis on average 97%, with standard deviation 13%, across the sample of banks. 16 We provide summaryinformation about the maturity profiles of assets and liabilities in Figures 1 and 2.The weighted average maturity gap for banks, depicted in Figure 1, is calculated by subtracting theweighted average maturity of liabilities from assets. The weights used are the total asset and liabilityvalues in each maturity bucket, normalised to sum to one. From Figure 1 it can be seen that exceptfor two banks (Piraeus Bank Group GR033 and Svenska Handelsbanken SE086) the weighted average15 By coverage of the data set, we mean the ratio of the number of non-missing observations across all banks, to thetotal number of observations that would characterise a complete data set.16 When we compare our total loan exposures to the total “exposure at default” used by the European BankingAuthority in its capital exercise, we obtain a mean of 93% and a standard deviation of 37% across all banks.8
AT002AT003BE004BE005CY006CY007DE018DE019DE020DE021DE023DE024DE025DE027DE028DE029DK008DK009DK010DK011ES059ES060ES061ES062ES064FI012FR013FR014FR016GB088GB089GB090GB091GR032GR033HU036IE037IE038IE039IT040IT041IT042IT043IT044MT046NL047NL048NL049NL050NO051PL052PT053PT055PT056SE084SE085SE086SE087SI057SI058Years6543210-1Weighted average maturity gap between assets and liabilities for large European banks in 2011Figure 1: Average maturity gap for large European banks in 2011, based on the cashflow timingassumptions used throughout this paper. The red line shows the sample mean (2.07 years) and thegreen lines show plus/minus one standard deviation (1.44 years).9
Page 1 and 2: Maturity Transformation and Interes
Page 4 and 5: ‘duration’ number in the penult
Page 6 and 7: paper.2.1 Accounting valuation meth
Page 10 and 11: AT002AT003BE004BE005CY006CY007DE018
Page 12 and 13: Table 3: Summary of the bank assets
Page 14 and 15: Eur billionsLoan asset exposures by
Page 16 and 17: tA tt5++t t tt4−+L tt3+t t tt2−
Page 18 and 19: p({φ i }, {f(m)}, {τ i }) ∑ i
Page 20 and 21: Kernel density of month−on−mont
Page 22 and 23: Committee method understates the re
Page 24 and 25: The first is to use a weighted aver
Page 26 and 27: Table 8: Correlations between l−m
Page 28 and 29: Table 9: Rankings of the sample ban
Page 30: Hicks, J. (1939): Value and Capital

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