Banks’ Maturity Transformation: Risk, Reward, and Policy

Download or read book Banks’ Maturity Transformation: Risk, Reward, and Policy written by Pierluigi Bologna and published by International Monetary Fund. This book was released on 2018-03-09 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.