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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 ...
Has the Relationship between Bank Size and Profitability Changed?
Kristen Regehr and Rajdeep Sengupta explore whether the relationship between bank size and profitability changed after the 2007?09 financial crisis.
Alternative Models of Interest Rate Pass-Through in Normal and Negative Territory
In the aftermath of the Great Recession, many countries used low or negative policy rates to stimulate the economy. These policies gave rise to a rapidly growing literature that seeks to understand and quantify their impact. A fundamental step when studying the effectiveness of low and negative policy rates is to understand their transmission to loan and deposit rates. This paper proposes two models of pass-through from policy rates to loan and deposit rates that can match important stylized facts while remaining parsimonious. These models can be used to study the transition between positive ...