What does it mean that institution borrowed short and lent long?it would be great if u may use a comprehensive example.

Thank you very much.


1 Answer 1


"Short" and "long" here refer to durations, rather than taking short and long positions on an asset. "Borrowing short" is when banks raise capital by taking deposits that must be available on short notice. "Lending long" is when banks loan out money which won't be available to them for a long time. Discussions of this topic on the internet seem to be by those who think that fractional reserve banking is fundamentally broken, that we should all be buying gold, that the big economic problem today is inflation, or other deeply wrong ideas. I'd be skeptical of information you find on this idea from such sources.

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    I'd only add that OP should think about how banks work. The deposits can be 1 year CDs or just checking accounts. But the bank lends money as a 30 year mortgage. +1 by the way. Sep 1, 2015 at 18:22
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    @JoeTaxpayer This is a nice comment as it provides two concrete examples of what a 'short borrow' and a 'long lend' could be. Would even take this comment a step further by quickly elaborating on what a 'CD' is.
    – tsp216
    Dec 4, 2017 at 1:55

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