Two theories of banking

Theory 1 says that banks borrow short to lend long: They take in deposits and use them to make long-term loans and buy long-term bonds, but the deposits are short-term (you can take your money out of the bank at any time) and so banks have a lot of funding risk (they might run out of money) and interest-rate risk (when rates go up, their assets will lose value and their liabilities will not).

Theory 2 says that actually bank deposits are long-term funding: Depositors can take their money out, but they reliably don’t, because they have long-term relationships with their banks; the banks invest a lot in building those relationships to get this cheap long-term funding, and they can use it to make long-term investments.

If you invested less in branches and more in websites in the past few years, you were able to get a lot of deposits cheaply — but in the spring of 2023, you weren’t able to keep them, because nobody was shaking hands with your website

Matt Levine Bloonberg 17 July 2023

https://www.bloomberg.com/opinion/articles/2023-07-17/branches-make-bank-runs-harder

Gamla Mor Anna och bankernas affärsmodell

https://englundmacro.blogspot.com/2023/03/gamla-mor-anna-och-bankernas.html