Banks, Maturity Transformation, and Monetary Policy

Pascal Paul

No 2020-07, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: Banks engage in maturity transformation and the term premium compensates them for bearing the associated duration risk. Consistent with this view, I show that banks’ net interest margins and term premia have comoved in the United States over the last decades. On monetary policy announcement days, banks’ stock prices fall in response to an increase in expected future short-term interest rates but rise if term premia increase. These effects are reflected in the response of banks’ net interest margins and amplified for institutions with a larger maturity mismatch. The results reveal that banks are not immune to interest rate risk.

Keywords: Banks; Maturity Transformation; Monetary Policy; Term Premium; Interest Rate Risk; Bank Profitability (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 E58 G21 G32 (search for similar items in EconPapers)
Pages: 68
Date: 2020-02-28
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.frbsf.org/economic-research/files/wp2020-07.pdf Full text - article PDF (application/pdf)

Related works:
Journal Article: Banks, maturity transformation, and monetary policy (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfwp:87553

Ordering information: This working paper can be ordered from

DOI: 10.24148/wp2020-07

Access Statistics for this paper

More papers in Working Paper Series from Federal Reserve Bank of San Francisco Contact information at EDIRC.
Bibliographic data for series maintained by Federal Reserve Bank of San Francisco Research Library ().