Banks' Maturity Transformation: Risk, Reward, and Policy
33 Pages Posted: 15 Nov 2018
Date Written: March 2018
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.
Keywords: Banks, Banks, Credit risk, Financial stability, Interest rates, Profits, Macroprudential Policy, profitability, maturity transformation, macroprudential, microprudential, Government Policy and Regulation
JEL Classification: E43, G21, G28
Suggested Citation: Suggested Citation