Banking on Deposits: Maturity Transformation without Interest Rate Risk

Banking on Deposits: Maturity Transformation without Interest Rate Risk

We show that in stark contrast to conventional wisdom, maturity transformation does not expose banks to significant interest rate risk. Aggregate net interest margins have been near-constant over 1955–2013, despite substantial maturity mismatch and wide variation in interest rates. We argue that this is due to banks’ market power in deposit markets. Market power allows banks to pay deposit rate...

Interest Rate Risk in the Banking Book

Over the past decade the Basel Committee on Banking Supervision (the Basel Committee) has released a number of consultative documents discussing the management and supervision of the interest rate risk inherent in a bank’s balance sheet. The Committee’s most recent release on this topic forms part of the proposed New Basel Capital Accord (the New Accord), which comes into effect in 2007, and de...

A Jurisprudential Analysis on Provisional Profit Assurance of Investment Deposits in Interest-free Banking

The term investment deposits are one of the important modes of mobilization of resources in the Iranian banking system that are eligible for a certain provisional profit. According to the bank’s agency in this term of deposits, the appliance of Provisional Profit and its periodic payment to depositors before calculating of actual profit at the end of the fiscal year, are for incentives of custo...

Making Interest-free Banking System More Efficient with Regards to Interest Rate

Interest Rate Risk