Working Papers

2020-07 | September 2021


Banks, Maturity Transformation, and Monetary Policy


Banks engage in maturity transformation and the term premium compensates them for bearing the associated interest rate 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 muted for nonbank equity, amplified for banks with a larger maturity mismatch, and reflected in bank cash-flows. 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