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

Bologna, Pierluigi, Banks' Maturity Transformation: Risk, Reward, and Policy (March 2018). IMF Working Paper No. 18/45. Available at SSRN:

Pierluigi Bologna (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184

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