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, as changes in interest rates can negatively impact a bank's profitability and financial stability. If interest rates rise, the cost of funding short-term liabilities may increase while the return on long-term assets may remain fixed, resulting in lower net interest income. Conversely, if interest rates fall, the return on assets may decline more quickly than the cost of liabilities, also reducing profitability.

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