Question A:
Since maturity transformation is an inherent feature of commercial banks' business model, some duration mismatch between assets and liabilities is unavoidable.
Responses
Responses weighted by each expert's confidence
Question B:
For the purposes of capital regulation, banks should be required to mark their holdings of Treasury and Agency securities to market at all times (even though their loans are not marked to market).
Responses
Responses weighted by each expert's confidence
Question A Participant Responses
| Participant | University | Vote | Confidence | Bio/Vote History |
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 John Campbell |
Harvard | Bio/Vote History | ||
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This is certainly true of the current model of commercial banking, but a shift to an alternative "narrow banking" model with minimal maturity mismatch is a realistic possibility in the coming decades.
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 John Cochrane |
Hoover Institution Stanford | Did Not Answer | Bio/Vote History | |
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 Francesca Cornelli |
Northwestern Kellogg | Did Not Answer | Bio/Vote History | |
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 Douglas Diamond |
Chicago Booth | Bio/Vote History | ||
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Short-term debt is a key liability product of financial intermediaries. Even if they make floating rate loans or hedge some interest rate risk, there will remain a duration mismatch.
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 Darrell Duffie |
Stanford | Bio/Vote History | ||
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Maturity transformation is dominant in practice, not inherent. Other approaches, like PE, provide credit with stable long term funding.. Narrow banks could serve the needs of depositors safely and efficiently. Alternative approaches to banking might be worth consideration.
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 Janice Eberly |
Northwestern Kellogg | Did Not Answer | Bio/Vote History | |
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 Xavier Gabaix |
Harvard | Did Not Answer | Bio/Vote History | |
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 Itay Goldstein |
UPenn Wharton | Bio/Vote History | ||
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 John Graham |
Duke Fuqua | Did Not Answer | Bio/Vote History | |
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 Campbell R. Harvey |
Duke Fuqua | Bio/Vote History | ||
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Maturity transformation is a feature of the "current" model. But the current model is not the only model. With social media, FedNow, and perhaps CBDCs, the run risk greatly increases. Narrow banks and investment trusts are a credible alternative - 90 years after the Chicago Plan.
-see background information here |
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 David Hirshleifer |
USC | Bio/Vote History | ||
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 Harrison Hong |
Columbia | Did Not Answer | Bio/Vote History | |
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 Wei Jiang |
Emory Goizueta | Bio/Vote History | ||
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 Steven Kaplan |
Chicago Booth | Bio/Vote History | ||
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 Anil Kashyap |
Chicago Booth | Bio/Vote History | ||
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See the report explaining the rationale for the 2022 Nobel Prize
-see background information here |
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 Ralph Koijen |
Chicago Booth | Bio/Vote History | ||
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While the duration of banks' assets appears to exceed the duration of their liabilities, the opposite is true for life insurance companies (see the first link). The regulatory treatment of derivatives by insurance regulators may play a role (see the second link).
-see background information here -see background information here |
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 Camelia Kuhnen |
UNC Kenan-Flagler | Bio/Vote History | ||
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banks need to hedge duration risk.
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 Andrew Lo |
MIT Sloan | Did Not Answer | Bio/Vote History | |
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 Michelle Lowry |
Drexel LeBow | Bio/Vote History | ||
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 Sydney Ludvigson |
NYU | Bio/Vote History | ||
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 Matteo Maggiori |
Stanford GSB | Bio/Vote History | ||
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 Gregor Matvos |
Northwestern Kellogg | Bio/Vote History | ||
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Maturity transformation is an inherent feature of financial intermediation, but it does not need to take place in commercial banks. Even now, many commercial banks engage in originate to distribute, which reduces duration mismatch. Banking as a service also does not require it.
-see background information here -see background information here |
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 Tobias Moskowitz |
Yale School of Management | Bio/Vote History | ||
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 Stefan Nagel |
Chicago Booth | Bio/Vote History | ||
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Maturity-mismatch need not imply duration-mismatch. Long-term illiquid assets can have floating interest rates. It's a choice of banks to lend (or invest) at fixed rather than variable interest rates (this choice in turn may be influenced by regulation and accounting rules).
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 Jonathan Parker |
MIT Sloan | Bio/Vote History | ||
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Given derivative markets, it is straightforward for banks to hedge the vast majority of interest rate risk. Some small amounts will surely remain due to uncertainty over pre-payment and default risk, although these too can be significantly hedged.
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 Christine Parlour |
Berkeley Haas | Bio/Vote History | ||
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While banks do engage in maturity transformation, the extent to which they do so is a choice.
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 Thomas Philippon |
NYU Stern | Bio/Vote History | ||
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 Manju Puri |
Duke Fuqua | Bio/Vote History | ||
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 Michael R. Roberts |
UPenn Wharton | Bio/Vote History | ||
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Have to wonder if there is a "better" - in a social welfare sense - business models that allows for narrow(er) banking for demand deposits.
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 Paola Sapienza |
Northwestern Kellogg | Did Not Answer | Bio/Vote History | |
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 Amit Seru |
Stanford GSB | Did Not Answer | Bio/Vote History | |
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 Robert Stambaugh |
UPenn Wharton | Bio/Vote History | ||
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But they can hedge interest-rate risk to at least some degree.
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 Laura Starks |
UT Austin McCombs | Bio/Vote History | ||
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 Jeremy Stein |
Harvard | Bio/Vote History | ||
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Mismatch between duration of assets and contractual duration of liabilities (e.g. treating demand deposits as zero duration) is a near-certainty. But mismatch with effective duration of liabilities that takes into account stickiness of deposits is less inevitable.
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 Johannes Stroebel |
NYU Stern | Bio/Vote History | ||
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 Amir Sufi |
Chicago Booth | Bio/Vote History | ||
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 Sheridan Titman |
UT Austin McCombs | Bio/Vote History | ||
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The banks can easily hedge duration risk
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 Stijn Van Nieuwerburgh |
Columbia Business School | Bio/Vote History | ||
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Banks use 4 tools to hedges the rate risk: deposit franchise, interest rate derivatives, loan sales, and variable-rate assets. In practice, they do not offset all rate risk, presumably because that would reduce profits substantially.
-see background information here -see background information here |
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 Toni Whited |
UMich Ross School | Bio/Vote History | ||
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It is not obvious that maturity transformation is a big part of banking if banks have deposit market power. Then sticky deposit rates "match" infrequently repriced loan rates.
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Question B Participant Responses
| Participant | University | Vote | Confidence | Bio/Vote History |
|---|---|---|---|---|
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John Campbell |
Harvard | Bio/Vote History | ||
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This change would reflect the liquidity of securities, and would encourage commercial banks to correctly trade off liquidity of securities versus hold-to-maturity accounting for less liquid loans.
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John Cochrane |
Hoover Institution Stanford | Did Not Answer | Bio/Vote History | |
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Francesca Cornelli |
Northwestern Kellogg | Did Not Answer | Bio/Vote History | |
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Douglas Diamond |
Chicago Booth | Bio/Vote History | ||
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The reason for not marking everything to market is poor market estimates for illiquid assets. Mark to market for treasuries assures that banks are not insolvent from pure interest rate risk while capital measures are strong. This is correct even with deposit beta less than one.
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Darrell Duffie |
Stanford | Bio/Vote History | ||
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Frequent marking to market for purposes of maintaining adequate capital buffers would lead to fewer sudden realizations of capital shortfalls and fewer catastrophic failures. Disclosure to bank creditors and equity investors would improve.
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Janice Eberly |
Northwestern Kellogg | Did Not Answer | Bio/Vote History | |
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Xavier Gabaix |
Harvard | Did Not Answer | Bio/Vote History | |
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Itay Goldstein |
UPenn Wharton | Bio/Vote History | ||
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John Graham |
Duke Fuqua | Did Not Answer | Bio/Vote History | |
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Campbell R. Harvey |
Duke Fuqua | Bio/Vote History | ||
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1. Given accounting rules, banks do not hedge the HTM securities. 2. It is unfair to mark to market the HTM & not the liabilities. 3. There are other models that should be debated. Chicago Plan is one version. Blackstone's recent initiative is a hybrid that reduces bank risk.
-see background information here -see background information here |
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David Hirshleifer |
USC | Bio/Vote History | ||
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Harrison Hong |
Columbia | Did Not Answer | Bio/Vote History | |
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Wei Jiang |
Emory Goizueta | Bio/Vote History | ||
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Steven Kaplan |
Chicago Booth | Bio/Vote History | ||
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Anil Kashyap |
Chicago Booth | Bio/Vote History | ||
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It is crazy to have securities that are liquid and regularly traded mismarked.
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Ralph Koijen |
Chicago Booth | Bio/Vote History | ||
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Camelia Kuhnen |
UNC Kenan-Flagler | Bio/Vote History | ||
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Andrew Lo |
MIT Sloan | Did Not Answer | Bio/Vote History | |
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Michelle Lowry |
Drexel LeBow | Bio/Vote History | ||
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Sydney Ludvigson |
NYU | Bio/Vote History | ||
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Matteo Maggiori |
Stanford GSB | Bio/Vote History | ||
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In general I favor marking to market all assets for which there is a readily accessible price. Treasuries being one of them. For other assets, best effort on estimating changes in market value.
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Gregor Matvos |
Northwestern Kellogg | Bio/Vote History | ||
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This is not a first order issue, especially since even marked-to-market security losses do not affect regulatory capital for most banks. Banks need more equity capital, measured in a way that most closely approximates market values.
-see background information here -see background information here -see background information here |
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Tobias Moskowitz |
Yale School of Management | Bio/Vote History | ||
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More accurate information is better, even if the loans cannot be marked to market.
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Stefan Nagel |
Chicago Booth | Bio/Vote History | ||
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Jonathan Parker |
MIT Sloan | Bio/Vote History | ||
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All the complexity and regulation and opacity of the banking sector should not be used to fund investment in bonds. If banks have a purpose worth the messy costs of the sector, it is only for information-intensive relationship lending. Bonds should be marked to market and hedged
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Christine Parlour |
Berkeley Haas | Bio/Vote History | ||
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The extent to which duration risk on treasuries etc. is an issue depends on the composition of the banks' assets.
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Thomas Philippon |
NYU Stern | Bio/Vote History | ||
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Manju Puri |
Duke Fuqua | Bio/Vote History | ||
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Michael R. Roberts |
UPenn Wharton | Bio/Vote History | ||
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I'm not sure this is the solution to recent runs and, in fact, may make the problem worse.
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Paola Sapienza |
Northwestern Kellogg | Did Not Answer | Bio/Vote History | |
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Amit Seru |
Stanford GSB | Did Not Answer | Bio/Vote History | |
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Robert Stambaugh |
UPenn Wharton | Bio/Vote History | ||
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Laura Starks |
UT Austin McCombs | Bio/Vote History | ||
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Jeremy Stein |
Harvard | Bio/Vote History | ||
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I would like to see securities held as available-for-sale market to market; less clear this makes sense for securities held to maturity.
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Johannes Stroebel |
NYU Stern | Bio/Vote History | ||
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Amir Sufi |
Chicago Booth | Bio/Vote History | ||
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Sheridan Titman |
UT Austin McCombs | Bio/Vote History | ||
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I think both should be marked to market
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Stijn Van Nieuwerburgh |
Columbia Business School | Bio/Vote History | ||
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Securities like Treasuries already enjoy favorable risk weights. They trade in liquid markets with price transparency. Proper accounting of the market value of liquid securities will increase depositor confidence in banks' financial health.
-see background information here |
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Toni Whited |
UMich Ross School | Bio/Vote History | ||
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