The aim of the project is to study the role of interest rate risk management undertaken by banks and the relationship with these rates which underpins loans to firms and households. The project aims to document the extent to which the constraints faced by banks with high interest rate risk exposure lead these banks to demand higher compensation for the marginal unit of risk to which they expose themselves in granting credit. This project may potentially highlight the importance of the market power of banks as well as the effect of heterogeneity in banks' exposure to interest rate risk on their ability to raise lending rates.
A second aspect this project aims to investigate is the transfer of this channel on business credit rates to government credit rates, possibly through arbitrage mechanisms.
