4 ms·
> Of course the flaw in this story is that the interest rate risk should have been hedged, and it wasn’t. How does the banking sector in aggregate hedge its in
by User23 4y ago
> Of course the flaw in this story is that the interest rate risk should have been hedged, and it wasn’t.
How does the banking sector in aggregate hedge its interest rate risk exactly? They have to find a net counterparty outside the sector who wants exposure to interest rate risk. Who exactly would that be at sufficient scale to protect trillions in deposits?
- taeric 4y agoI'm also interested in this answer. I've seen running credit cards?
- lordnacho 4y agoSpeculators aka hedge funds.
- quickthrower2 4y agoDamn is no one gonna pay for the free lunch?
- balderdash 4y agoIt’s probably easier to think of who wants long duration risk, and I think the answer is 1. Speculators (who like the volatility/convexity) 2. Pension funds (they have very long dated liabilities, and so potentially want to increase the duration of their portfolio)