Firms would have to demonstrate that they either maintained more or less matched durations of their assets and liabilities in the steady state or, what in some circumstances could amount to much the same thing, have liquidity buffers sufficient to meet all liquidity demands even during a systemic event following a major shock to asset values. Such an approach would entail two major costs.
First, such a requirement would significantly constrain the level of liquidity and maturity transformation in normal times, surely resulting in significant constraints on credit extension, with consequent negative effects on economic growth. A primary economic function of banks and other financial intermediaries is facilitating liquidity management throughout the economy.