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The trouble is that other US government interventions also eliminated a big chunk of the "anything else to do with it". In particular, most mortgages in the US
by makomk 4y ago
The trouble is that other US government interventions also eliminated a big chunk of the "anything else to do with it". In particular, most mortgages in the US are fixed rate for the entire duration of their term through government backing, which almost entirely eliminates one of the big sectors of loans that banks in other countries can use to make money on the premium from interest payments with less duration mismatch than 10-year or 30-year bonds. In most other countries, mortgages are either variable rate or only fixed rate for a relatively short period. Also, a substantial proportion of all US mortgages in existence apparently locked in their interest rates during the time period in 2020 and 2021 when they were at record lows.
- _heimdall 4y agoI'm not as familiar with how mortgage markets work in other countries, but at least in the US fixed rate mortgages are almost always risk balanced against fixed rate investmentsor wrapped up in securities that move risk off the banks' books. A bank would indeed be crazy to hold onto fixed rate 30-year loans with interest rates at near zero.
- makomk 4y agoYeah, in the US fixed rate mortgages are handed off to the government who guarantees them and bundles them up into securities... that SVB then ended up buying a bunch of because it's not like there was exactly a wide variety of investment options available that they could back their deposits with that actually paid meaningful interest.
- _heimdall 4y agoAt least based on this article, it even sounds like this is what they wanted banks to do! The reverse-repo market was created because the Fed wanted banks to buy securities directly from them when interest rates where increased, sounds like SVB and others just followed that playbook