Rate mismatch: Risk and minimum capital

Working papers (original series)| 1998 | N 7

Abstract

The present work discusses the problem of risk due to interest rate mismatch or term mismatch in financial entities, with the objective of finding an efficient way to measure and manage this risk in the Argentine financial system. The justification for preventive regulation in this sense is the same as that applied to other factors that affect the risk of insolvency of financial entities: bankruptcies can produce high costs not only for depositors and other clients of the entity but also for also for the entire financial system, the payment system and the economy in general. Preventive regulation causes the entity to internalize these costs and allows a minimum level of prudence to be determined. This document constitutes a background and presents the foundations of the capital requirement rule for interest rate risk adopted by the BCRA by Communication "A" 2793.