Determinants of bank interest margins: Impact of maturity transformation

Arbeitspapier

This paper explores the extent to which interest risk exposure is priced in bank margins. Our contribution to the literature is twofold: First, we present an extended model of Ho and Saunders (1981) that explicitly captures interest rate risk and returns from maturity transformation. Banks price interest risk according to their individual exposure separately in loan and deposit rates, but reduce these charges when they expect returns from maturity transformation. Second, using a comprehensive dataset covering the German universal banks between 2000 and 2009, we test the model-implied hypotheses not only for the commonly investigated net interest income, but additionally for interest income and expenses separately. Controlling for earnings from bank-individual maturity transformation strategies, we find all banks to charge additional fees for macroeconomic interest volatility exposure. Microeconomic on-balance interest risk exposure from maturity transformation, however, only affects the smaller savings and cooperative banks, but not private commercial banks. Returns are only priced in income margins.

Object Details

• ISBN: 978-3-86558-828-9
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bundesbank Discussion Paper ; No. 17/2012

Classification and Topics

• Classification: Wirtschaft ; Firm Behavior: Theory ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages
• Subject: Interest rate risk ; Interest margins ; Maturity transformation ; Bank ; Zinsspannenrechnung ; Zinsrisiko ; Laufzeit ; Risikomanagement ; Betriebliche Preispolitik ; Schätzung ; Deutschland

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Entrop, Oliver ; Memmel, Christoph ; Ruprecht, Benedikt ; Wilkens, Marco
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2012

Further information

• Handle: http://hdl.handle.net/10419/60477
• Last update: 10.03.2025, 11:43 AM CET