For once we strip out the technical stuff there what is actually being described there is maturity transformation, the very essence of banking itself.

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Broadly, though, all banks earn money through some combination of maturity transformation (borrowing short and lending long), taking credit risk (ie, lending to people who may not pay it back) and earning fees and punting on their own account in the capital markets.

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The result is that maturity-transformation risk has paid off handsomely: banks have snaffled up deposits and lent the money on at much higher rates.

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Banks, as Mr Smithers points out, essentially take two risks: credit risk the risk that a borrower won't pay the money back and what is succinctly dubbed maturity-transformation risk taking in short-term deposits and lending the money out for a longer term at a higher rate of interest to companies or the government (by buying government bonds).

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