Banks’ Maturity Transformation: Risk, Reward, and Policy
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Summary:
The aim of this paper is twofold: first, to study the determinants of banks’ net interest margin with a particular focus on the role of maturity transformation, using a new measure of maturity mismatch; second, to analyse the implications for banks from the relaxation of a binding prudential limit on maturity mismatch, in place in Italy until mid-2000s. The results show that maturity transformation is a relevant driver of the net interest margin, as higher maturity transformation is typically associated with higher net interest margin. However, ‘excessive’ maturity transformation— even without leading to systemic vulnerabilities— increases banks’ interest rate risk exposure and lowers their net interest margin.
Series:
Working Paper No. 2018/045
Subject:
Banking Commercial banks Credit risk Financial regulation and supervision Financial services Financial statements Market risk Public financial management (PFM) Short term interest rates Yield curve
English
Publication Date:
March 9, 2018
ISBN/ISSN:
9781484345184/1018-5941
Stock No:
WPIEA2018045
Pages:
32
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