Banks’ maturity transformation: risk, reward, and policy

Pierluigi Bologna

No 1159, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: 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 of the relaxation of a binding prudential limit on maturity mismatch, in place in Italy until the mid-2000s. The results show that maturity transformation is an important driver of the net interest margin, as higher maturity transformation is typically associated with higher net interest margin. However, there is a limit to this positive relationship as ‘excessive’ maturity transformation — even without leading to systemic vulnerabilities — has some undesirable implications in terms of higher exposure to interest rate risk and lower net interest margin.

Keywords: banks; profitability; maturity transformation; interest rates; macroprudential; microprudential (search for similar items in EconPapers)
JEL-codes: E43 G21 G28 (search for similar items in EconPapers)
Date: 2017-12
New Economics Papers: this item is included in nep-ban, nep-mac and nep-rmg
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http://www.bancaditalia.it/pubblicazioni/temi-disc ... 159/en_tema_1159.pdf (application/pdf)

Related works:
Working Paper: Banks’ Maturity Transformation: Risk, Reward, and Policy (2018)
Working Paper: Banks’ maturity transformation: risk, reward, and policy (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1159_17

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