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6min chapter
Panic In The Banking System
The Macro Trading Floor
Introduction
After the great financial crisis a new regulation unfolded to make sure that banks held enough liquid assets on the asset side of the balance sheet to meet stressed deposit outflows. Banks started buying bonds to a very large extent and filled their investment portfolios with these bonds. Bonds obviously beat treasuries they run interest rate risk for the large part of it. Corporate bonds mortgage backsecurities also have credit risk and risk but they come with risks right? If we look at Silicon Valley Bank they have a pretty like firm financing structure tilted towards deposits and those deposits were to a large extent invested in bonds. The P&L's wings that come from interest rate volatility or credit spread volatility can hedge the interest rate
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Discover
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