What does the phrase “banks borrowing short and lending long” mean?
In: 39
Banks “borrow short” when they take in (borrow) deposits which need to be returned to depositors in a short timeframe, aka withdrawals. Think checking and savings accounts. They “lend long” in the form of loans to customers that have much longer durations. Think car loans and mortgages. Banks make their money by paying depositors low interest rates (on the borrow), charging higher ones on loans (the lend), and pocketing the difference.
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