Banking on Deposits: Maturity Transformation without Interest Rate Risk

Itamar Drechsler, Alexi Savov, Philipp SchnablFinance金融中介UTD24

Journal of Finance2021-02-15National Bureau of Economic Research; Federal Reserve Bank of San Francisco; Princeton University; University of Michigan; American Economic AssociationDOI

Citations355

ABSTRACT We show that maturity transformation does not expose banks to interest rate risk—it hedges it. The reason is the deposit franchise, which allows banks to pay deposit rates that are low and insensitive to market interest rates. Hedging the deposit franchise requires banks to earn income that is also insensitive, that is, to lend long term at fixed rates. As predicted by this theory, we show that banks closely match the interest rate sensitivities of their interest income and expense, and that this insulates their equity from interest rate shocks. Our results explain why banks supply long‐term credit.

Interest rateMaturity (psychological)Interest rate riskMonetary economicsEconomicsNet interest incomeEquity (law)FranchiseNet interest marginTerm (time)Transformation (genetics)Business