Banks in the eurozone with a larger exposure to interest rate risk cut their lending more when monetary policy tightens, research by the Bank for International Settlements finds.

In the working paper, Lara Coulier, Cosimo Pancaro and Alessio Reghezza measure eurozone banks’ maturity transformations. By borrowing at the short end of the yield curve and lending over the longer term, banks make profits. However, when interest rates rise, the maturity mismatch means the value of their assets falls by