Asset and liability management is a traditional tool used by intermediaries to limit liquidity and interest rate risks. To assess the evolution of asset-liability linkages, we build and decompose an interdependence index, which decreased between the early 2000s and the onset of the COVID-19 pandemic and started to rise again in 2022 for both larger and smaller Italian banks. The monetary policy operations, the 2012 tax reform, and the low interest rate environment meant there was less need for banks to closely link assets and liabilities in their balance sheets, thus fostering greater independence between investing and financing decisions.
Michelangeli, V., Piersanti, F. (2023). Interdependence between assets and liabilities in the banking system: Changes in the last two decades. FINANCE RESEARCH LETTERS, 58(Part A December 2023) [10.1016/j.frl.2023.104256].
Interdependence between assets and liabilities in the banking system: Changes in the last two decades
Piersanti F. M.
2023
Abstract
Asset and liability management is a traditional tool used by intermediaries to limit liquidity and interest rate risks. To assess the evolution of asset-liability linkages, we build and decompose an interdependence index, which decreased between the early 2000s and the onset of the COVID-19 pandemic and started to rise again in 2022 for both larger and smaller Italian banks. The monetary policy operations, the 2012 tax reform, and the low interest rate environment meant there was less need for banks to closely link assets and liabilities in their balance sheets, thus fostering greater independence between investing and financing decisions.
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