The fact that a bank's assets tend to be long-term while its liabilities are short-term creates:

Question

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The fact that a bank's assets are long-term while its liabilities are short-term creates interest-rate risk. This means that if interest rates rise, it will be difficult for the bank to earn sufficient income from its assets to cover the cost of its liabilities. Conversely, if interest rates fall, the bank could earn more income than it needs to cover its liabilities, but it may then have difficulty finding new long-term assets to invest in. This imbalance in interest-rate sensitivity can create significant risk for the bank.

The Fact That a Bank's Assets Tend to Be Long-Term