A bank takes overnight deposits from checking accounts and lends them out for the next 10 years. This fundamental mismatch between the duration of assets and liabilities in the banking sector is a major problem, particularly in a world where more and more households and firms can withdraw and transfer funds simply by pulling out their iPhones.
For insurance companies, the duration of liabilities is different. In particular, life insurance companies owe policyholders a stream of future cash flows over the next 10 years. As a result, assets and liabilities are duration-matched in insurance firms.
The bottom line is that, in a world where mobile banking is more and more widespread, the duration mismatch in the banking sector is a growing risk, and every dollar that leaves the banking sector and goes to other long-term suitable sources of financing for firms and households makes the financial system more stable.
Note: Policyholder liabilities include life insurance reserves, pension entitlements, and miscellaneous liabilities. Sources: Federal Reserve Board, Financial Accounts of United States, Haver Analytics, Apollo Chief Economist
This presentation may not be distributed, transmitted or otherwise communicated to others in whole or in part without the express consent of Apollo Global Management, Inc. (together with its subsidiaries, “Apollo”).
Apollo makes no representation or warranty, expressed or implied, with respect to the accuracy, reasonableness, or completeness of any of the statements made during this presentation, including, but not limited to, statements obtained from third parties. Opinions, estimates and projections constitute the current judgment of the speaker as of the date indicated. They do not necessarily reflect the views and opinions of Apollo and are subject to change at any time without notice. Apollo does not have any responsibility to update this presentation to account for such changes. There can be no assurance that any trends discussed during this presentation will continue.
Statements made throughout this presentation are not intended to provide, and should not be relied upon for, accounting, legal or tax advice and do not constitute an investment recommendation or investment advice. Investors should make an independent investigation of the information discussed during this presentation, including consulting their tax, legal, accounting or other advisors about such information. Apollo does not act for you and is not responsible for providing you with the protections afforded to its clients. This presentation does not constitute an offer to sell, or the solicitation of an offer to buy, any security, product or service, including interest in any investment product or fund or account managed or advised by Apollo.
Certain statements made throughout this presentation may be “forward-looking” in nature. Due to various risks and uncertainties, actual events or results may differ materially from those reflected or contemplated in such forward-looking information. As such, undue reliance should not be placed on such statements. Forward-looking statements may be identified by the use of terminology including, but not limited to, “may”, “will”, “should”, “expect”, “anticipate”, “target”, “project”, “estimate”, “intend”, “continue” or “believe” or the negatives thereof or other variations thereon or comparable terminology.
