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That's not true. When interest rates go up, they have to pay the higher rates on customer deposits, but they're not getting any more from their bonds. Perhaps t
by tlb 4y ago
That's not true. When interest rates go up, they have to pay the higher rates on customer deposits, but they're not getting any more from their bonds. Perhaps they can spread the losses over 10 years, but the losses are the same.
- bagacrap 4y agoThey don't have to and have not been paying higher interest rates on deposits. One concern is that depositors will realize they can get better returns on money market funds and withdraw from banks en masse.
- xhrpost 4y agoI don't think they "have" to pay the higher interest. Wouldn't they ultimately get that interest from parking money at the Fed over night? A bank isn't going to pay interest on money that results in a net loss, either they get it from the Fed or they are making private loans at a higher rate. Otherwise there would be no incentive to increase deposits as each would result in lost profits.
- tlb 4y agoA bank either pays competitive deposit interest rates, or people move their deposits elsewhere. That can happen quite quickly, and they'd have the same liquidity problem.
- lvl102 4y agoRight because interest rates only go up, right?
- tlb 4y agoObviously they go down too, but for a bank to be doomed if they go either of the two possible directions is bad.