Few Banks Are Hedging Interest-Rate Risk

 A research paper says unhedged securities holdings are more widespread than investors might realize.

The paper—“Limited Hedging and Gambling for Resurrection by U.S. Banks During the 2022 Monetary Tightening?”—contends that hundreds of other banks share that risk, which played a role in the collapse last month of Silicon Valley Bank. 

The paper didn’t single out individual institutions, instead presenting an analysis of aggregate data.

 “These banks have taken a large risk, which is profitable for bank shareholders on the upside, but the losses are borne by the FDIC on the downside,” they wrote, referring to losses incurred in the SVB failure by the Federal Deposit Insurance Corp. 

Matt Grossman WSJ 18 April 2023 

https://www.wsj.com/articles/few-banks-are-hedging-interest-rate-risk-21ed1947