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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.

  • 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.
What’s wrong with the banks
Rising interest rates have left banks exposed. Time to fix the system—again | Leaders

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