Banks, Low Interest Rates, and Monetary Policy Transmission

Wang, Olivier

doi:10.2139/ssrn.3520134

Cited by 31 publications

(34 citation statements)

References 44 publications

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“…Our analysis suggests that such periods could hurt bank profitability if they last longer than the maturity of banks' long-term assets. Wang (2018) finds that banks mitigate this effect by widening the spreads they charge on their loans.…”

Section: Related Literaturementioning

confidence: 99%

Banking on Deposits: Maturity Transformation without Interest Rate Risk

Drechsler¹,

Savov²,

Schnabl³

2021

The Journal of Finance

222

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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.

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Section: Related Literaturementioning

confidence: 99%

Banking on Deposits: Maturity Transformation without Interest Rate Risk

Drechsler¹,

Savov²,

Schnabl³

2021

The Journal of Finance

222

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show abstract

“…1 See also, e.g., Purnanandam (2007), Rampini, Viswanathan and Vuillemey (2019), and Vuillemey (2019). 2 See, e.g., Altavilla, Boucinha and Peydró (2018), Ampudia and van den Heuvel (2019), Borio, Gambacorta and Hofmann (2017), Brei, Borio and Gambacorta (2019), Brunnermeier and Koby (2019), Claessens, Coleman and Donnelly (2018), Heider, Saidi and Schepens (2019), Lopez, Rose and Spiegel (2018), Ulate (2019), and Wang (2018). Road Map.…”

Section: Introductionmentioning

confidence: 99%

Banks, Maturity Transformation, and Monetary Policy

Paul¹

2020

ERWP

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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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“…Similarly, in our model, the money supply (currency outstanding) is adjusted in the background to keep the real price level constant. Wang (2020) assumes that all financial intermediation takes place though commercial banks, as we do, but for us savers and borrowers are endogenously determined. Aguirregabiria, Clark and Wang (2016) examine the cross-state expansion of bank branches subsequent to the Riegle-Neal Act.…”

Section: Introductionmentioning

confidence: 99%

Branch Expansion versus Digital Banking: The Dynamics of Growth and Inequality in a Spatial Equilibrium Model

Teng

Townsend

2021

SSRN Journal

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We develop a heterogeneous-agent model with local spatial markets to study the relationships among bank expansion, growth, and inequality. In the model, households choose their occupations, consumption, and holdings of loans and portfolio assets that vary by liquidity. Banks choose the locations of new branches, which affect the financial frictions facing households across regions. We calibrate the model using a geographic information system to evaluate the rapid bank expansion in Thailand between 1986-1996. The model quantifies the sources of growth and inequality over time and across space and the potential role of digital banking in substantially reducing regional heterogeneity.

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Banks, Low Interest Rates, and Monetary Policy Transmission

Cited by 31 publications

References 44 publications

Banking on Deposits: Maturity Transformation without Interest Rate Risk

Banking on Deposits: Maturity Transformation without Interest Rate Risk

Banks, Maturity Transformation, and Monetary Policy

Branch Expansion versus Digital Banking: The Dynamics of Growth and Inequality in a Spatial Equilibrium Model

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