Watkins research shows interest rate sensitivity disclosures accurately predict changes in bank revenue resulting from interest rate shocks

Author: Lorie Marsh

Some banks say interest income sensitivity disclosures are useless. Jessica Watkins’ research shows otherwise. 

“We found that analyst forecasts were more accurate in projecting future net income when banks provided the disclosures, relative to banks that did not provide them,” Watkins said, “with the caveat that we can only assess the accuracy of the disclosure for the banks that provide them.” Because not all banks disclose their net income sensitivity, Watkins and her co-authors acknowledge the possibility of selection bias; perhaps the banks that choose to disclose are simply better at predicting the impact of interest rate shocks than the banks that don’t disclose. Although they attempted to control for this selection bias, Watkins admits their findings would be stronger if all banks were required to issue the disclosure. 

To read the full article, visit http://bizmagazine.nd.edu/issues/2022/spring-2022/research-the-ups-and-downs-of-interest-sensitivity/