A zero-cost of funds approach tends to result in the bank holding long-term highly illiquid assets funded by long-term stable liabilities

An average cost of funds approach tends to result in the greatest maturity transformation for a bank's balance sheet.

A matched-maturity marginal cost of funds approach converts the bank's fixed-rate borrowing cost to a floating-rate borrowing cost.

Both an average cost of funds approach and a zero-cost of funds approach appropriately align the maturity of the bank's lending and borrowing activities when management compensation is based on net income.