Publication detail

An Alternative Assessment of Banks’ Risk in a Low Interest Rate Environment

Author(s): prof. PhDr. Petr Teplý Ph.D., Matěj Maivald, Liběna Černohorská
Type: Articles in refereed journals
Year: 2022
Number: 0
ISSN / ISBN: ISSN 1813-8691
Published in: HSE Economic Journal
Publishing place:
Keywords: bank; credit risk; low interest rates; risk-weighted assets
JEL codes: C33, E43, G21
Suggested Citation: Teplý P., Maivald M., Černohorská L. (2022). An Alternative Assessment of Banks’ Risk in a Low Interest Rate Environment. HSE Economic Journal, 26 (1): 104-119. DOI: 10.17323/1813-8691-2022-26-1-104-119
Grants: GACR 20-00178S - The impact of the normalisation of interest rates on risk management VŠE IP100040
Abstract: In this paper, we analyze the impact of a low interest rate environment on banks’ risk-weighted assets (RWA)/total assets ratio, also known as RWA density. In the theoretical part, we identify the key factors affecting RWA variability, which is correlated with RWA density. In the empirical part, based on a sample of 352 banks from the Eurozone, Japan, Sweden, Switzerland and Denmark during the period 2011–2017, we apply the system of the Generalized Method of Moments. We did not find any evidence to support the main hypothesis that a low interest rate environment will influence banks’ RWA density after 1 year. We rejected our hypothesis even for periods of 2 and 3 years. Our contribution to the literature is three-fold. Firstly, we discuss the theoretical and practical aspects. of RWA variability and density. Secondly, unlike other researchers, we also focus on macro-level determinants (including a low interest rate environment), and identify ROAE and bank heterogeneity as significant determinants of RWA density. Finally, we examine a large data sample, which enables us to identify the key determinants of RWA density and to obtain robust results from across different regions and bank business models in the recent period. Our findings survive a battery of robustness checks and provide some solid support for regulators when they propose new bank capital requirements and reform the calculation of RWA.


Česká Spořitelna


Patria Finance