Interest rate risk of Australian financial sector companies in a period of regulatory change

In a recent study, Madura and Zarruk (1995) provide evidence that interest rate risk is greater for non-US banks (British, Canadian, German and Japan) than for US banks. The primary contribution of the current paper is to extend the Madura and Zarruk analysis to the financial institutions of Australia over a period of extreme regulatory change, namely, 1978 to 1992. Our major findings are that there is evidence of (1) sensitivity to long-term interest rates; (2) instability of interest rate sensitivity across subperiods; and (3) interest rate sensitivity of large banks and finance companies.