He says that short term savers sign up for a fixed amount of time. Their money cannot contractually (or morally) be offered for longer lengths of time. I think its an enforcement of property rights. The risk for the depositer, of course, is the economy tumbles and long term borrowers cannot make payments. Variance in bank reserves go up and when reserves go to zero some deposits are lost.
But my question is, lending short and pooling funds that can be lent long might be a good idea to the cash holder, willing to take the risk. They buy short term bank notes in a liquid market, evaluating the risk by looking at the variance in capital accounts of the bank. Once the bank collects enough short term cash, with reserves, it makes a long term loan. When the market tumbles the short term note is bankrupt.
How is the one OK and the other not?
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