Tuesday, May 13, 2014

Turner Turns (13) Maturity Transformation

Banks have the ability to lend long and borrow short. This makes it easier for them to create credit.

They can create a new twenty-year mortgage and keep the balance sheet balanced by taking short-term deposits.

A person or business cannot do this. If the business wants to give it clients twenty-years to pay, it locks up some of its cash or stock for that length of time.

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