Changing Perceptions of Maturity Mismatch in the US Banking System: Evidence from Equity Markets

US banks are thought to have become increasingly fragile and exposed during the lead-up to the recent financial crisis. However, commercial bank leverage actually decreased during this period. To resolve this discrepancy, we explore another dimension of bank balance sheets: the effective maturity mismatch between assets and liabilities. Although banks assets are generally longer in term than their liabilities, we find evidence of a structural break in the mid-1990s when equity markets begin pricing banks as relatively longer-funded. Categories of bank assets such as real estate loans (i.e., mortgages and MBSs) and consumer loans were perceived as having become effectively shorter-term.