The aim of this paper is twofold: first, to study the determinants of banks’ net interest margin
with a particular focus on the role of maturity transformation, using a new measure of
maturity mismatch; second, to analyse the implications for banks from the relaxation of a
binding prudential limit on maturity mismatch, in place in Italy until mid-2000s. The results
show that maturity transformation is a relevant driver of the net interest margin, as higher
maturity transformation is typically associated with higher net interest margin. However,
‘excessive’ maturity transformation— even without leading to systemic vulnerabilities—
increases banks’ interest rate risk exposure and lowers their net interest margin.
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