Explanation

During the 2007-2008 credit crisis, the asset-liability mismatch phenomenon involved financial institutions using short-term financing (such as repurchase agreements and commercial paper) to fund long-term assets (like mortgage-backed securities and other structured products).

• Option A is incorrect because it describes the opposite scenario - short-term assets with short-term financing, which doesn't create a mismatch.
• Option B is incorrect because it suggests using long-term financing for long-term assets, which is actually proper asset-liability management.
• Option C is correct as it accurately describes the core problem: using short-term funding sources to finance long-term, illiquid assets.
• Option D is incorrect because asset-liability maturity mismatch inherently creates funding liquidity risk, especially when short-term funding sources dry up.

This mismatch became critical when short-term funding markets froze, forcing institutions to sell long-term assets at distressed prices, amplifying the crisis.