A type of transformation that is performed by banks and other depository institutions whereby short-term deposits are accepted at low interest rate and then are transformed into high-yield long term loans. The transformation process capitalizes on two factors: 1) term: short-term to long-term transformation and 2) rate: low rate to high rate transformation. The bank’s margin is the difference between high-rate on the side of long-term loans and low-rate on the side of short-term deposits.
July 13, 2024
