Maturity transformation

Financial intermediaries commonly perform maturity transformation, enabling borrowers to obtain longer-term finance while savers retain relatively liquid claims. The arrangement depends on managing expected withdrawals, liquid assets, access to funding and credit quality. A mismatch exposes the institution to refinancing or liquidity risk if short-term funds cannot be renewed. It can also create interest-rate exposure when asset and liability rates reprice differently. The social usefulness of the function does not remove these risks or justify assuming all short-term funders will behave predictably.