Impact of Interest Rate Increases on Bank Portfolios. Exploring the Mitigated Lower of Market Principle and Loss-Free Valuation in German Commercial Accounting

The paper explores the impact of rising interest rates on the value of bank portfolios, particularly for small and medium-sized banks. It examines how the moderate lower of market principle can mitigate the adverse effects of these interest rate increases. By analyzing the valuation rules of the German Commercial Code alongside the IDW statement on loss-free valuation, the study highlights the flexibility available to German banks in managing their financial assessments. This approach could help institutions navigate the challenges posed by fluctuating interest rates.