We see, therefore, that maturity mismatching does not lead to unsustainable change in the structure of production, when savings are renewed or "rolled over" and this is correctly anticipated by entrepreneurs.
Now we shall examine what restricts the amount of maturity mismatching in a free market.
In a free banking system there are limits to the practice of maturity mismatching by banks besides the wish to comply with the wisdom of the principles of sound finance and secure financing sources.
A similar procedure limits the amount of maturity mismatching in a free banking system.
Another check to maturity mismatching is provided by bank customers.
Credit expansion as a special case of maturity mismatching
The practice of credit expansion, i.e., the granting of credits with demand deposits, is a special case of maturity mismatching. A fractional reserve bank assumes short-term liabilities that are due instantaneously on demand, and lend them for longer terms.
Thus, fractional reserve banking is maturity mismatching in extremis, as it relies on liabilities with zero maturity and the need to roll them over continuously.
This insight applies to other kinds of maturity mismatching. If all short-term savings are rolled over and saved until the projects are finished, a lengthening of the structure of production is sustainable.
The difference between fractional reserve maturity mismatching and other forms of maturity mismatching is that via fractional reserve banking the money supply is increased.
Another difference between fractional reserve banking mismatching and other mismatching is its legal and ethical status.