William B. English, Skander J. Van den Heuvel, Egon Zakrajšek
Abstract:Because they engage in maturity transformation, a steepening of the yield curve should, all else equal, boost bank profitability. We reexamine this conventional wisdom by estimating the reaction of bank intraday stock returns to exogenous fluctuations in interest rates induced by monetary policy announcements. We construct a new measure of the mismatch between the repricing time or maturity of bank assets and liabilities and analyze how the reaction of stock returns varies with the size of this mismatch and ot…
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