Credit Risk-Taking and Maturity Mismatch : The Role of the Yield Curve

We study the credit-risk-taking behaviour of Italian banks in response to changes in the term structure of interest rates using a confidential dataset on new loans to non-financial firms. We find that ex-ante risk-taking is negatively related to the short end of the yield curve but positively to the long end. Banks' balance sheet conditions, as captured not only by capitalization but also by the maturity mismatch between assets and liabilities, are key to relating these findings to the theoretical literature