You can’t hedge out of a negative position. If the bank is insolvent it has no need to hedge. Either rates improve and they continue to operate or they don’t an

You can’t hedge out of a negative position. If the bank is insolvent it has no need to hedge. Either rates improve and they continue to operate or they don’t and eventually they go bankrupt due to slow deposit outflow. If they hedge now they just realize the losses and instantly fail, that would be dumb.