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1l.cRate-race:Saverrs’iplreferlshort-term

Assets

Liabilities

Long-term assets

  • -

    mortgages

  • -

    firm loans

-

10 years

Equity

Long-term funding

expensive

Short-term funding

- CP

3 months

- Repo

1 day

cheap

Money Market Funds

$ 3 trillion Firms savings

$ 1 trillion

  • Rat race

  • I can withdraw funds before others if bank is in trouble

  • Lower inflation risk

  • (Incentivizes CEOs, preference shocks)

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