Working Papers

2020-07 | April 2020


Banks, Maturity Transformation, and Monetary Policy


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.

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Article Citation

Paul, Pascal. 2020. "Banks, Maturity Transformation, and Monetary Policy," Federal Reserve Bank of San Francisco Working Paper 2020-07. Available at