How Excessive Is Banks’ Maturity Transformation?

68 Pages Posted: 26 Oct 2016

See all articles by Anatoli Segura

Anatoli Segura

Bank of Italy

Javier Suarez

Centre for Monetary and Financial Studies (CEMFI); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: April 28, 2016

Abstract

We quantify the gains from regulating banks’ maturity transformation in an infinite horizon model of banks which finance long-term assets with non-tradable debt. Banks choose the amount and maturity of their debt trading off investors’ preference for short maturities with the risk of systemic crises. As in Stein (2012), pecuniary externalities make unregulated debt maturities inefficiently short. The assessment is based on the calibration of the model to Eurozone banking data for 2006. Lengthening the average maturity of wholesale debt from its 2.8 months to 3.3 months would produce welfare gains with a present value of euro 105 billion.

Keywords: liquidity risk, maturity regulation, pecuniary externalities, systemic crises

JEL Classification: G01, G21, G28

Suggested Citation

Segura, Anatoli and Suarez, Javier, How Excessive Is Banks’ Maturity Transformation? (April 28, 2016). Bank of Italy Temi di Discussione (Working Paper) No. 1065. Available at SSRN: https://ssrn.com/abstract=2859462 or http://dx.doi.org/10.2139/ssrn.2859462

Anatoli Segura (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Javier Suarez

Centre for Monetary and Financial Studies (CEMFI) ( email )

Casado del Alisal 5
28014 Madrid
Spain
+34 91 429 0551 (Phone)
+34 91 429 1056 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

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