There is a demand for banks to provide liquidity services. Depositors place their savings with a bank but want to be able to withdraw some part of their funds at short notice. A corporate treasurer wants to have the company’s funds in an account where they can be accessed quickly to meet the needs of the firm.
At the same time, we prefer to have our loans for substantially longer periods of time. It would be particularly inefficient and bothersome if we had to renegotiate our home loan on a monthly basis. More importantly, it would be very difficult to make any sort of long-term planning or investment decision if there were no long-term loans available.