This special feature provides empirical evidence that the more banks engage in maturity transformation the more their net interest margin benefits from a steepening of the yield curve, boosting bank profits. The extent of banks’ maturity mismatch determines the sensitivity of their net interest income to changes in interest rates and the slope of the yield curve. Significant institutions rely more than cooperative and savings banks on interest rate derivatives and have a more diversified positioning. Euro area banks increased their positions in interest rate derivatives over the last two years in anticipation of the start of monetary policy normalisation. Banks can mitigate the interest rate risk stemming from their maturity mismatch by using derivatives for hedging purposes. ![]() This special feature builds on the concept of maturity gap as a metric of banks’ maturity mismatch to shed light on how banks’ engagement in maturity transformation differs across euro area countries and bank types. Published as part of the Financial Stability Review, November 2023. Prepared by Lara Coulier, Sándor Gardó, Benjamin Klaus, Francesca Lenoci, Cosimo Pancaro and Alessio Reghezza ![]() Assessing risks from euro area banks’ maturity transformation
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