The Fed Shouldn't Stress High Interest Rates

The big issue obviously is they don't stress high interest rates. That is the issue confronting the banking industry right now. Ironically, if you assume as their stress test does that rates go back to zero in a severe recession,. That actually helps banks that have a lot of unrealized losses in their books. When you take rates back to zero, those little yielding assets regain value quickly. So in a way, they're rewarding banks for not managing their interest rate risk very well. The other issue is what happens if we have a protracted period where the yield curve is inverted and short term borrowing rates are higher than long term rates. And that's going to be a real challenge for banks.