| In the municipal financial system,only city commercial banks are authorized to accept demand deposits.They accept deposits from citizens with short maturities and give loans to businesses depending on maturity conversion.In the case of rising market interest rates,the rise in bank interest income is smaller than that of the development in bank interest expenses,resulting in a decrease in bank interest margin and losses.There is no difficulty with logic,but does interest rate risk impact the revenues of city commercial banks in practice?How does a commercial bank in a metropolitan area handle interest rate risk?This article assesses the interest rate sensitivity of city commercial banks,empirically tests their interest rate risk hedging,and examines the underlying reasons why the profitability of city commercial banks is less influenced by interest rate fluctuations in order to serve as a reference for the interest rate management practice of city commercial banks.The research conclusions are as follows:(1)City commercial banks and other commercial banks have successfully hedged interest rate risk by matching the interest rate sensitivity of interest revenue and expenditure in order to protect their profitability from interest rate swings.However,city commercial banks hedge their interest rate risk less than other types of commercial banks,particularly major commercial banks.(2)Between the tenure of bank assets and the interest rate sensitivity of bank interest expenditures,there is a substantial negative link.Thus,city commercial banks that are not interest rate sensitive would retain more securities to lengthen the duration of assets,thus balancing interest revenue and expenditure in terms of interest rate sensitivity,ensuring that banks’ profitability is unaffected by interest rate fluctuations.(3)There is a considerable negative association between interest expense sensitivity and the competitiveness of city commercial banks’ deposit markets,which matches the theoretical model’s prediction:Enhancing the competitiveness of city commercial banks’ deposit markets is critical for reducing the interest rate sensitivity of bank interest expenditures and hedging interest rate risk. |
