Term Premium and Bank Lending

Camelia Minoiu, Andrés Schneider and Min Wei

No 2023-049r1, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We document an “expected bank profitability” channel linking the term premium to bank lending. We formalize this channel using a dynamic bank portfolio model predicting that a higher term premium raises banks’ expected returns from maturity transformation, incentivizing credit provision, with stronger effects for more leveraged banks. Using supervisory microdata, the unanticipated term premium rise after the 2013 Taper Tantrum, and U.S. Basel III capital surprises, we show that more leveraged banks expand lending more, supporting firm-level investment and growth. Our findings suggest unconventional monetary policies compressing the term premium may reduce bank lending, dampening their intended expansionary effects.

Keywords: Term premium; Yield curve; Bank lending; Bank profitability; Maturity transformation (search for similar items in EconPapers)
JEL-codes: E44 E52 E58 G20 (search for similar items in EconPapers)
Pages: 82
Date: 2023-07-10, Revised 2026-07-06
New Economics Papers: this item is included in nep-fdg
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Why Does the Yield Curve Predict GDP Growth? The Role of Banks (2025)
Working Paper: Why Does the Yield Curve Predict GDP Growth? The Role of Banks (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:96648

DOI: 10.17016/FEDS.2023.049r1

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