Banks’ Maturity Transformation: Risk, Reward, and Policy

Pierluigi Bologna

No 2018/045, IMF Working Papers from International Monetary Fund

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 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: WP; maturity transformation; risk exposure; interest rate risk; net interest margin; maturity mismatch; banks; profitability; interest rates; macroprudential; microprudential; interest margin; net position; Market risk; Credit risk; Yield curve; Short term interest rates; Financial statements; Global (search for similar items in EconPapers)
Pages: 32
Date: 2018-03-09
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Banks’ maturity transformation: risk, reward, and policy (2018)
Working Paper: Banks’ maturity transformation: risk, reward, and policy (2017)
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