[vkou]

The whole point of banking is that you borrow money from your depositors at low interest rates, but at a variable term length (The depositor can always withdraw), and you lend money to borrowers at high interest rates, but at a fixed term length (The bank can't just call in your mortgage tomorrow.)

Borrow short, lend long. The latter necessitates 'locking money up'.

A well-managed bank will properly manage the risk of the short loans getting called.

A poorly-managed bank will go all-in on getting short loans from people who are likely all going to call them in at the same time (startups), while putting their entire lending portfolio into lending long in an environment where long-term loans are dropping in value.

[beezle]

I know you are generalizing but there are times the yield curve is the other way and it is better to lend short and borrow long. But a well managed bank takes care to duration(not maturity) match their assets and liabilities while also taking into account liquidity needs and buffers. Also, the above applies to use of their own capital as well.