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brewer12345 · 10-20-2005, 11:00 AM

Depends on their interest rate posture, hedging strategy, etc. It is quite possible for a bank to be very well duration matched (taking minimal interest rate risk) and still make nice money. Look around: can you borrow money on a HELOC , buy reasonably safe assets that are floating rate and make money? Nope. But a bank can borrow at institutional rates or less (deposits) and make a HELOC loan and make attractive returns, especially when they lever their equity capital 10 to 15X.

10-20-2005, 11:00 AM	#3
brewer12345 Give me a museum and I'll fill it. (Picasso) Give me a forum ... Join Date: Mar 2003 Posts: 9,993	Depends on their interest rate posture, hedging strategy, etc. It is quite possible for a bank to be very well duration matched (taking minimal interest rate risk) and still make nice money. Look around: can you borrow money on a HELOC , buy reasonably safe assets that are floating rate and make money? Nope. But a bank can borrow at institutional rates or less (deposits) and make a HELOC loan and make attractive returns, especially when they lever their equity capital 10 to 15X. __________________ "And Jesus spake, 'Become thou now fishers of adjustable rate mortgages'" - New Conservative Bible