Banks’ Maturity Transformation: Risk, Reward, and Policy

March 9, 2018

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Format: Chicago

Pierluigi Bologna. Banks’ Maturity Transformation: Risk, Reward, and Policy, (USA: International Monetary Fund, 2018) accessed September 20, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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.

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

Keywords: Banks, Credit risk, Financial statements, Global, Interest margin, Interest rate risk, Interest rates, Macroprudential, Market risk, Maturity mismatch, Maturity transformation, Microprudential, Net interest margin, Net position, Profitability, Risk exposure, Short term interest rates, WP, Yield curve

Publication Details

Pages:

32
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/045
Stock No:

WPIEA2018045
ISBN:

9781484345184
ISSN:

1018-5941

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