Maturity Transformation

This refers to converting short term deposits into long term loans.

Maturity Transformation reflects the fact that many investors look for shorter term deposits to reduce risk and provide flexibility whilst many borrowers require longer term project financing, e.g. mortgages etc. Banks take multiple short term investor deposits and make longer term loans; managing the risk that the inflow or cost of deposits may fluctuate during the life of the longer term loan.

Maturity Transformation is a term normally found in business economics and financial management.

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