
The Economics of Maturity Transformation
Hachem, Kinda
The Economics of Maturity Transformation
GEM-0191 | Published August 17, 2021 | 12 pages. Technical Note
Collection: Darden School of Business
Product Details
Few concepts are as important as maturity transformation for understanding financial crises. This technical note guides students through the key mechanisms in the theory using a representative investor, a long-term borrower, and an issuer of shorter-term claims. It then highlights the pervasiveness of maturity transformation in modern financial products. It works well before classes on deposit insurance, bank regulation, the 2008 financial crisis, and/or shadow banking generally.
This technical note is designed for an MBA elective on money and banking. It was prepared to serve the following teaching objectives: - Explore how a short-term asset is created from a longer-term one. - Discuss why such maturity transformation may be valuable to investors. - Understand the fundamental fragility that opens the door to crises. - Appreciate the pervasiveness of maturity transformation in the data.
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