Watchhttp://nonlineardynamic.blogspot.com/2012/10/maturity-transformation-and-duration.html
Paul Krugman conveys an idea in words better than anyone else regarding the topic that is at the heart of modern banking: maturity transformation. In simple terms, individual savers deposit their money with the banks. These funds should be available on demand, because the savers can withdraw these on demand [hence the term demand deposit]. But the banks are allowed to loan these funds to borrowers for a specified amount of duration agreeable between the bank and the borrower.