BANK EXPOSURES TO INTEREST-RATE RISK - THE CASE OF THE AUSTRALIAN BANKING INDUSTRY

This paper provides evidence of the changing nature of interest-rate s ensitivity of a banking and finance portfolio in Australia over the pe riod 1978-1992. Specifically, the potential sensitivity to short-and l ong-term interest rate movements is examined in each of three subperio ds (1978-1982, 1983-1987 and 1988-1992). Consistent with previous US e vidence, our major finding is that the banking portfolio exhibits sens itivity only to long-term interest rates. However, this sensitivity is significant only during the middle subperiod - a time when Australian financial markets experienced dramatic deregulatory changes including the floating of the domestic currency.