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It was relatively cheap to hedge the interest rate risk. Most banks did that. SVB didn’t.
by mathattack 3y ago
It was relatively cheap to hedge the interest rate risk. Most banks did that. SVB didn’t.
- vgatherps 3y agoBuying the 10 year and hedging all risks down to the two years is equivalent to just buying the two year. I think most other banks tried to get interest revenue from something other than going turbo long long-term treasuries? Or just accepted lower profit?
- mathattack 3y agoCould also hedge with swaps or swaptions or mortgage pass throughs. Banks who are very long mortgages frequently short passthroughs. They take enough risk off the table to not have the risk exposure of a hedge fund. https://en.m.wikipedia.org/wiki/Mortgage-backed_security https://en.m.wikipedia.org/wiki/Mortgage-backed_security
- smileysteve 3y agoMany banks are still building deposit reserves by competing on CD rates.