- Rising interest rates have left banks exposed, wiping out $229bn in market value of America’s banks this month.
- Unrecognised losses on long-term bonds have left banks vulnerable to collapse.
- The Federal Reserve has offered loans up to the face value of bonds to prevent runs, but this encourages banks to behave recklessly.
- Regulators must remove exemptions for mid-sized banks, require them to submit plans for orderly resolution if they fail, and stress-test their safety cushion.
- A regime must be built that recognises the risks from rising interest rates, such as stress-testing what might happen to a bank’s safety cushion were its bond portfolios marked to market and if rates rose further.
The Economist — World — Banks — Monetary Policy — Regulation — Finance
What’s wrong with the banks
Rising interest rates leave banks exposed, wiping out $229bn in America’s bank market value. Regulators must remove exemptions and build a regime that recognises risks.