Liability management is the means bankers have used to accommodate the public's desire for long-term loans such as mortgages to the short-term deposits that fund these credits, but economic realities can blunt this tool and prompt a credit squeeze.

Practicing liability management has led to overconfidence. Banks that made lucrative loans have said, "Whatever we have to pay for CDs to fund this loan will be worth it." The reality is that deposits, at any price, tend to dry up in a time of crisis.

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