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’, settling a long-standing debate in the literature. 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 long-term assets negatively affect their net worth, causing tighter leverage constraints. A New Keynesian DSGE model with endogenous maturity choices explains this asymmetry: banks with high maturity mismatches are more exposed to long-duration losses that compress net worth and amplify real effects. In contrast, standard policy rate shocks, which mainly affect short-term rates, generate little heterogeneity in lending responses.