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Changing Perceptions of Maturity Mismatch in the US Banking System: Evidence from Equity Markets

  • Andrew T. Young

    (Department of Economics, West Virginia University)

  • Travis Wiseman

    (Department of Economics, West Virginia University)

  • Thomas L. Hogan

    (Department of Economics, George Mason University)

US banks are thought to have become increasingly fragile and exposed during the lead-up to the recent financial crisis. However, commercial bank leverage actually decreased during this period. To resolve this discrepancy, we explore another dimension of bank balance sheets: the effective maturity mismatch between assets and liabilities. Although banks assets are generally longer in term than their liabilities, we find evidence of a structural break in the mid-1990s when equity markets begin pricing banks as relatively longer-funded. Categories of bank assets such as real estate loans (i.e., mortgages and MBSs) and consumer loans were perceived as having become effectively shorter-term.

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File URL: http://be.wvu.edu/phd_economics/pdf/10-04.pdf
File Function: First version, 2010
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Paper provided by Department of Economics, West Virginia University in its series Working Papers with number 10-04.

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Length: 42 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:wvu:wpaper:10-04
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  13. Douglas W. Diamond & Raghuram G. Rajan, 2009. "Illiquidity and Interest Rate Policy," NBER Working Papers 15197, National Bureau of Economic Research, Inc.
  14. Rajan ( , Ramkishen S. & Bird, Graham, 2003. "Banks, Maturity Mismatches and Liquidity Crises: A Simple Model," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 56(2), pages 185-192.
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