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| You have that right. The math says it doesn't matter. Loss now means better earnings as your new bonds have higher yields. By maturity it is equal in earnings either way.
As far as ability to speculate, they can. That's what blew up SVB. Most banks are negatively gapped simply because demand for longer term fixed rate notes exceeds demand for longer term CDs. To complecate thing though, borrowers can refi lower and CDs can pay the penalty and reinvest higher whenever it makes sense to do so. This all gets modeled into rate sensitivity models. I've found them to be surprisingly... accurate actually.
Your last paragraph is exactly what I meant. Humans do what they are incentivized to do. | |
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reality check a story about Banks
