I doubt it would have made a difference if they had hedged the duration risk. Likely that would have made the problem worse - because that hedge is expensive.

I doubt it would have made a difference if they had hedged the duration risk. Likely that would have made the problem worse - because that hedge is expensive. The issue is that their 'loans' (the bonds) didn't pay enough income, which meant that when the cheap money left they couldn't meet the terms of the cash letter from the Fed. They didn't have the income to pay the interest. They paid too much for the bonds and assumed they'd always have non-interest bearing deposits. Schoolboy error.