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This isn't right. Banks have always needed to manage interest rate risk. They do this by owning a range of securities with different maturities. It is bad pract
by danielmarkbruce 4y ago
This isn't right. Banks have always needed to manage interest rate risk. They do this by owning a range of securities with different maturities. It is bad practice to hold too much long dated stuff (as a %).
Most banks have managed their book appropriately. They've taken some losses, but not so much they wiped themselves out (as First Republic have done, and SVB did too).
- junofan 4y agoHold on a second. I thought the Fed opened a special loan program for precisely this situation after SVB. Why isn’t that program sufficient for First Republic?
- danielmarkbruce 4y agoFor at least two reasons: 1) It doesn't help them to borrow money at 4-5% if their loan book is earning less than (or even slightly more, because operating costs). Locking in losses won't save them. 2) The FDIC decided that things had further deteriorated at First Republic (ie, more deposits pulled than they expected) and downgraded their CAMEL rating. The Fed won't lend money once a rating drops to some level (I'm not sure exactly where they draw the line) Their assets are worth less than their liabilities. They are toast.