Maturity transformation

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Maturity transformation refers to the practice of fractional reserve banks (or other financial institutions) borrowing money on shorter timeframes than they lend money out.[1][2] Financial markets also have the effect of maturity transformation whereby investors such as shareholders and bondholders can sell their shares and bonds in the secondary market (i.e. the larger part of the stock market) at any time without affecting the company that issued the shares or bonds. Thus the company can be a long term borrower from a market of short term lenders. The short term lenders are simply buying and selling the ownership of the shares or bonds on the stock market. The company keeps a register of owners and changes the name whenever there is a sale.[3]

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References[edit]

  1. ^ "Maturity Transformation: 2012 Financial Markets Conference". www.frbatlanta.org. Federal Reserve Bank of Atlanta. Retrieved 8 July 2014. 
  2. ^ Paligorova, Teodora; Santos, João (March 2014). "Rollover Risk and the Maturity Transformation Function of Banks". Bank of Canada Working Paper 2014-8. 
  3. ^ Maturity Tranformation, Brad DeLong