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Capital Flows, Maturity Mismatches and Profitability in Emerging Markets: Evidence from Bank Level Data

  • Uluc Aysun

    (University of Connecticut)

Despite the extensive work on currency mismatches, research on the significance of maturity mismatches in emerging market countries is scarce. In this paper, I show that emerging market banks' maturity mismatches increase during periods of high capital inflows, and that banks with high maturity mismatches are less profitable during crisis periods but more profitable otherwise. Hence, banks face a tradeoff between higher returns and risk. These results follow from a panel regression on a data set I constructed by merging bank level data with aggregate data. A simple Diamond-Dybvig (1983) partial equilibrium framework motivates the empirical analysis.

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Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2006-29.

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Length: 52 pages
Date of creation: Aug 2006
Date of revision: Oct 2007
Handle: RePEc:uct:uconnp:2006-29
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Web page: http://www.econ.uconn.edu/

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  1. Mark Gertler & Simon Gilchrist & Fabio Natalucci, 2003. "External Constraints on Monetary Policy and the Financial Accelerator," NBER Working Papers 10128, National Bureau of Economic Research, Inc.
  2. Dani Rodrik & Andres Velasco, 1999. "Short-Term Capital Flows," NBER Working Papers 7364, National Bureau of Economic Research, Inc.
  3. Hoyt Bleakley & Kevin Cowan, 2005. "Maturity Mismatch and Financial Crises: Evidence from Emerging Market Corporations," IDB Publications (Working Papers) 6826, Inter-American Development Bank.
  4. Pablo A. Neumeyer & Fabrizio Perri, 2001. "Business Cycles in Emerging Economies:The Role of Interest Rates," Working Papers 01-12, New York University, Leonard N. Stern School of Business, Department of Economics.
  5. SinkeyJr., Joseph F. & Carter, David A., 2000. "Evidence on the financial characteristics of banks that do and do not use derivatives," The Quarterly Review of Economics and Finance, Elsevier, vol. 40(4), pages 431-449.
  6. Augusto de la Torre & Sergio L. Schmukler, 2004. "Coping with Risks through Mismatches: Domestic and International Financial Contracts for Emerging Economies," International Finance, Wiley Blackwell, vol. 7(3), pages 349-390, December.
  7. Barry Eichengreen & Ricardo Hausmann & Ugo Panizza, 2003. "Currency Mismatches, Debt Intolerance and Original Sin: Why They Are Not the Same and Why it Matters," NBER Working Papers 10036, National Bureau of Economic Research, Inc.
  8. Barry Eichengreen, 2004. "Capital Flows and Crises," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262550598, June.
  9. Bernanke, B. & Gertler, M. & Gilchrist, S., 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," Working Papers 98-03, C.V. Starr Center for Applied Economics, New York University.
  10. Bussière, Matthieu & Fratzscher, Marcel & Koeniger, Winfried, 2004. "Currency mismatch, uncertainty and debt maturity structure," Working Paper Series 0409, European Central Bank.
  11. Graciela L. Kaminsky, 2003. "Varieties of Currency Crises," NBER Working Papers 10193, National Bureau of Economic Research, Inc.
  12. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
  13. Graciela Kaminsky & Sergio Schmukler, 2003. "Short-Run Pain, Long-Run Gain: The Effects of Financial Liberalization," NBER Working Papers 9787, National Bureau of Economic Research, Inc.
  14. Jean Tirole, 2003. "Inefficient Foreign Borrowing: A Dual-and Common-Agency Perspective," Levine's Working Paper Archive 506439000000000136, David K. Levine.
  15. Sartoris, William L., 1993. "The term structure of interest rates and the asset and liability decisions of a financial intermediary," Journal of Economics and Business, Elsevier, vol. 45(2), pages 129-142, May.
  16. Chang, R. & Velasco, A., 1998. "Financial Crises in Emerging Markets: A Canonical Model," Working Papers 98-21, C.V. Starr Center for Applied Economics, New York University.
  17. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 1-74.
  18. Buch, Claudia M. & Lusinyan, Lusine, 2003. "Determinants of short-term debt: a note," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 13(2), pages 157-170, April.
  19. Roberto Chang & Andres Velasco, 1998. "Financial Crises in Emerging Markets," NBER Working Papers 6606, National Bureau of Economic Research, Inc.
  20. Diamond, Douglas W, 1991. "Debt Maturity Structure and Liquidity Risk," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 709-37, August.
  21. Jeanne, Olivier, 2000. "Debt Maturity and the Global Financial Architecture," CEPR Discussion Papers 2520, C.E.P.R. Discussion Papers.
  22. repec:rus:hseeco:123922 is not listed on IDEAS
  23. Galindo, Arturo & Panizza, Ugo & Schiantarelli, Fabio, 2003. "Debt composition and balance sheet effects of currency depreciation: a summary of the micro evidence," Emerging Markets Review, Elsevier, vol. 4(4), pages 330-339, December.
  24. Arzu Tektas & E. Nur Ozkan-Gunay & Gokhan Gunay, 2005. "Asset and liability management in financial crisis," Journal of Risk Finance, Emerald Group Publishing, vol. 6(2), pages 135-149, March.
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