chinaco
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- Feb 14, 2007
- Messages
- 5,072
The federal govt has been excessively manipulating rates (since the tech bubble burst) over the last decade (too low for too long). It was one of the causes of the meltdown...."Cheap Money"... coupled with relaxed (or little credit scrutiny).
Well, those low rates that we (small investors) are struggling with... apparently has the bank regulators concerned about how banks may be trying to maneuver their fixed investments.
Isn't this the trap that some of the investment banks fell into during the meltdown. Using short-term debt to fund longer term business needs. Once their viability was in question, no one would lend them short-term money.
Well, those low rates that we (small investors) are struggling with... apparently has the bank regulators concerned about how banks may be trying to maneuver their fixed investments.
Interest Rate Risk: Another Big Threat To Bank EarningsOne needs to look no further than the S&L crisis to view the perils of unmanaged asset/liability gaps. Despite being extremely profitable at the time, these institutions failed to manage the risk of funding long-term fixed rate assets with short-term deposits.
Similarly, banks are faced with difficult decisions today as long term assets offer anemic yields, and an abundance of cheap funding abounds (brokered deposits etc..). There are no shortage of banks afraid to be stuck with a long term fixed rate asset (let’s say a 10yr treasury at 3%) with the fear of overnight funding rising dramatically.
This risk has not escaped the FDIC as Sheila Bair said “I do worry that credit quality …needs to be fixed, but the next issue is likely to be interest rate risk”. One banking analyst noted that “Banks have purposely given up current earnings for the ability to not lose money when rates rise”.
Isn't this the trap that some of the investment banks fell into during the meltdown. Using short-term debt to fund longer term business needs. Once their viability was in question, no one would lend them short-term money.