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It has been an eventful seven weeks since the start of the banking crisis. We recently lost another previously well-regarded, well-managed, risk-averse bank. We will likely lose more, potentially many more. And so many now have a simple question: Why?
Natural hedges
Deposit franchises as an asset
The value of a deposit franchise increases with interest rates
A brief aside about deposit beta
The deposit franchise as a hedge
Regional banks were instructed to load up on agency MBS
Why did the hedge bust?
Further bad news: the problem is bigger than MBS
It is no longer February
Many observe that banks seem to be blowing up due to predictable consequences of rising interest rates. How did we get here?
We are not affiliated with Patrick McKenzie. This unofficial audio edition is available to listen to and share for free. Read the original on Bits about Money.
Duration
~38 minutes (36K characters)
Release date
May 5, 2023