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Interdependence between assets and liabilities in the banking system: Changes in the last two decades

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  • Michelangeli, Valentina
  • Piersanti, Fabio Massimo

Abstract

Asset and liability management is a traditional tool used by intermediaries to limit liquidity and interest rate risks. To assess the evolution of asset-liability linkages, we build and decompose an interdependence index, which decreased between the early 2000s and the onset of the COVID-19 pandemic and started to rise again in 2022 for both larger and smaller Italian banks. The monetary policy operations, the 2012 tax reform, and the low interest rate environment meant there was less need for banks to closely link assets and liabilities in their balance sheets, thus fostering greater independence between investing and financing decisions.

Suggested Citation

  • Michelangeli, Valentina & Piersanti, Fabio Massimo, 2023. "Interdependence between assets and liabilities in the banking system: Changes in the last two decades," Finance Research Letters, Elsevier, vol. 58(PA).
  • Handle: RePEc:eee:finlet:v:58:y:2023:i:pa:s1544612323006281
    DOI: 10.1016/j.frl.2023.104256
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    More about this item

    Keywords

    Asset-liability management; Banks; Interdependence index;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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