2 ms·
The banks are borrowing short and lending long. There is a significant principle risk. If treasury yields spike up, the banks will take a bath.
by mynameishere 17y ago
The banks are borrowing short and lending long. There is a significant principle risk. If treasury yields spike up, the banks will take a bath.
- Xichekolas 17y agoBanks traditionally borrow short and lend long (savings accounts fund mortgages for instance). That is the risk they assume and what we pay them for. But in this case, they seem to be borrowing long and lending short (or at least borrowing short and lending short). It's not like the government is going to go demand it's money back like someone with a savings account is free to do. And really, would you take $200k to the bank and deposit it at 0.5% interest and then take out a $200k mortgage at 6%? You might if you were concerned about liquidity (unsteady income?) and could get at the $200k in savings when you needed to. But if you didn't have that flexibility, it wouldn't make sense.