Maturity transformation
Maturity transformation is when banks take short-term sources of finance, such as deposits from savers, and turn them into long-term borrowings, such as mortgages.
Despite all the furore that's surrounded the sector recently, retail banks perform a vital role in an economy. They take short-term sources of finance, such as deposits from savers and money market loans, and turn them into long-term borrowings, such as mortgages.
This is called maturity transformation a rather grand way of saying that they exist to meet the needs of lenders and borrowers. In return for providing this service they make money by charging more for a loan than they offer to pay on, say, a deposit.
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