Bridging the Gap: How Banks' Maturity Mismatch Shapes Monetary Policy Transmission

This study examines how maturity mismatches in banks’ balance sheets shape the transmission of monetary policy to credit supply. Linking supervisory data on approximately 1,800 euro area banks to loan-level credit records, we show that the role of maturity mismatches is highly ‘shock-specific’. Mismatches amplify the effects of unconventional but not conventional monetary policies. Banks with larger maturity gaps reduce lending more sharply following monetary policy surprises regarding quantitative tightening (QT) because valuation losses on longterm assets negatively affect their net worth, causing tighter leverage constraints. To rationalize these findings, we develop a medium-scale New Keynesian DSGE model featuring a segmented financial sector, where intermediaries are differentiated by their maturity gaps. This framework explains the observed asymmetry: the high-mismatch banking segment is more exposed to long-duration losses that compress net worth, tighten endogenous leverage constraints, and amplify real economic effects through an investment wedge. In contrast, standard policy rate shocks, which mainly affect short-term rates, generate little heterogeneity in lending responses.