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You have that backwards. You borrow long term, then lend short term. Trying to keep enough liquidity to match withdrawal rates to "keep money working". Lending
by salawat 4y ago
You have that backwards. You borrow long term, then lend short term. Trying to keep enough liquidity to match withdrawal rates to "keep money working".
Lending long (10 year) on money deposited for only a year is a recipe for disaster.
- pclmulqdq 4y agoEvery other institution borrows long to lend short. That's how money is usually made in a financial company, like a hedge fund or something similar. Banks are the counterparty (in a cosmic sense) to that trade: they borrow short to lend long. It is an inherently unstable business model, but it works if you trust them enough.