Another global bank shock builds

Rising interest rates via bond yields are not innocent for banks. Deutsche kicks us off.

With rates continuing to move higher, we thought it would be helpful to come up with a “Rule of Thumb” for how much each 10bp move in long-term interest rates impacts bank capital. On average, we find a 5bp hit to CET1 from a 10bp move in long rates. This factors in the impact to capital from bank available for sale securities portfolios, adjusted for hedges when possible.

The impact to GSIB/mega banks is about 3bps, on average, for a 10bp move in long rates. This is below the overall average given generally smaller AFS books, as these banks have relied more on held to maturity/HTM accounting.

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About the author

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.