Drehmann, Mathias, Steffen Sorensen, Marco Stringa, "The Integrated Impact of Credit and Interest Rate Risk on Banks: A dynamic framework and stress testing application", Journal of Banking & Finance, Vol. 34, No. 4, (April 2010), pp. 713-729.
Abstract: Credit and interest rate risk are the two most important risks faced by commercial banks in their banking book. In this paper we derive a consistent and comprehensive framework to measure the integrated impact of both risks. By taking account of the repricing characteristics of assets, liabilities and off balance sheet items, we assess the integrated impact of credit and interest rate risk on banks' economic value and capital adequacy. We then stress test a hypothetical but realistic bank using our framework and show that it is fundamental to measure the impact of credit and interest rate risk jointly.
Keywords: Integration of credit risk and interest rate risk, Asset and liability management, Economic value, Stress testing.
Previously titled: The Integrated Impact of Credit and Interest Rate Risk on Banks: An economic value and capital adequacy perspective --and before that-- Integrating Credit and Interest Rate Risk: A theoretical framework and an application to banks' balance sheets
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