This paper examines the information content and the usefulness of banks' interest rate risk public disclosures. ALM managers use Earnings at Risk ( EAR ) and Economic Value of Equity at Risk ( EVEAR ) as measures of the dollar amount of potential loss to net interest income and common shareholders' equity as a result of unforeseen interest rate changes. These two interest rate risk management metrics are now recognized benchmarks for measuring interest rate risk exposure, and its potential impact on a bank's financial position. At the explicit request of regulators, financial analysts and competitive pressures, more commercial banks are now reporting EAR and EVEAR numbers in their annual financial reports. To examine preliminary evidence on the information content of such public disclosures, we composed a sample of some of North America's largest commercial banks. The Canadian peer group is based on Canada's seven largest banks, and the U.S. peer group is composed of twelve of its largest banks. In particular, we investigate if "ex ante" EAR and EVEAR numbers help regulators, financial analysts and investors to explain the subsequent variability of commercial banks' net interest income and net income over time.
Interest rate, liquidity, and sovereign risk: derivative-based VaR