Bank Deposit Franchise, Interest Rate Risk, and Default Risk: An In-Depth Analysis

Registration ID: IJNRD_303686

Published ID: IJNRD2501307

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Chandra Shekhar

Keywords: Bank Deposit Franchise, Interest Rate Risk, Default Risk, Asset-Liability Management (ALM), Credit Risk, Financial Stability, Loan Diversification, Risk Mitigation, Banking Sector.

This paper explores the interplay between bank deposit franchises, interest rate risk, and default risk, with an emphasis on how these factors influence the stability and profitability of financial institutions. Bank deposit franchises are crucial for the functioning of the banking sector, providing essential funding for loans and other services. However, fluctuations in interest rates and the potential for loan defaults introduce significant risks that can threaten their stability. Interest rate risk arises when banks are exposed to shifts in the central bank’s benchmark rates, impacting their profit margins and asset-liability management strategies. On the other hand, default risk stems from the potential for borrowers to fail in repaying their loans, leading to financial losses for banks. This research utilizes a combination of quantitative analysis and qualitative case studies to evaluate how banks manage these risks and their effects on deposit franchises. The paper examines the various strategies employed by banks, such as asset-liability management, credit risk mitigation, and hedging techniques, to safeguard their deposit-based funding. Using real-world case studies from both developed and developing countries, the paper highlights the practical implications of these risks during periods of economic volatility, such as the 2008 financial crisis and other regional banking crises. The findings suggest that while banks have developed sophisticated mechanisms to manage interest rate and default risks, ongoing vigilance and regulatory support are essential to ensuring long-term financial stability. The paper concludes with policy recommendations aimed at improving risk management practices within the banking industry and fostering resilience in bank deposit franchises.

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Chandra Shekhar (January-2025). Bank Deposit Franchise, Interest Rate Risk, and Default Risk: An In-Depth Analysis. INTERNATIONAL JOURNAL OF NOVEL RESEARCH AND DEVELOPMENT, 10(1), d49-d85. https://ijnrd.org/papers/IJNRD2501307.pdf

Volume 10 Issue 1, January-2025

Pages : d49-d85

Paper Reg. ID: IJNRD_303686

Published Paper Id: IJNRD2501307

Research Area: Management All

Author Type: Indian Author

Country: PRAYAGRAJ (ALLAHABAD), Uttar Pradesh, India

Published Paper PDF: https://ijnrd.org/papers/IJNRD2501307.pdf

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