For long Bank of America enjoyed having money in there account at 0.10% interest rate , whereas they kept the money in Treasury Bond at 1% to 2%, earning billions in profit. Everyone first need to understand what a Treasury bond is. Lets say I buy a 100 dollar bond with 1% interest rate for 10 year , that means at the end of 10 year I would get my 100 dollar back and every year I would get 1 dollar as interest rates. This are very trusted bonds with highest security then bank. Now with .10 interest by bank of america, they kept the remaining .90 as there profit. Now the challenge is with the interest rate at 4-5% the 100 dollar bond with 1% yield to have the yield at 4-5% the bond value would change from 100 dollar to 80 dollar and if the interest rate rises the bond value falls further [But at the end of 10 year you going to get 100 dollar so money is safe, but if you access today you would get lesser value] Use bond calculator to understand the bond value https://www.omnicalculator.com/finance/bond-price Now based on the below report, bank of america which seems to have got 10 year bond with 1-1.5 interest rate and they have put around 500-700 billion dollar and are sitting on paper loss of 120 billion dollar , wiping out half of the value and if the interest rate rises more most of the banks would be totally wiped out. who had 10 year treasury taken. https://seekingalpha.com/article/4586797-list-of-banks-paper-losses-debt-securities-holdings Fed is having tough time, Controlling inflation and on other hand you have banks holding ten year treasury. What we could do ? 250K is fdic insured , but ideally in all the banks keep minimum amount need for like 2 month expense. Rest all money move to treasury in form of ladder program or stocks. if you have 100K invest in 3 month (25K), 6 month (25K), 9 month (25K) and 12 month(25K) treasury. you can invest for 10 year treasury at 4%, but remember if interest rate touches 8% your money is safe, but current bond value would be from 100 to around 60 Nobody no when the interest rates are going to peak out, but if future if you get 8% for 10 years, lock half of the cash funds there for 10 year getting 8% and if it peaks further keep putting money there. And finally with digital dollar coming, concept of banks will change a lot and might be a different from what we have today.
This is why you're actually seeing decent rates on CDs at banks. They're still doing crap rates on ordinary savings accounts, but they'll help you transfer it into a 13 month CD at 4.5% interest. I speculate that we might see CD rates touch 5-6% for multi-year terms so banks can lock in that capital.
"if you have 100K invest in 3 month (25K), 6 month (25K), 9 month (25K) and 12 month(25K) treasury." Why not put all 100K in 3 months treasury and keep renewing every 3 months, since the rates are certainly going to increase in near future?
Your choice, if you think rates are going to increase in future. Again understand ladder program, where you have it distributed. Nobody can predict peak
It’s not a problem for the bank since they still have almost 0 interest rates in their accounts and the spread is still 1%. It may be a problem if people start moving their money out of the bank. That’s always an issue to a bank regardless of the rates. Bank run can collapse any bank with any balance. And that’s exactly what you suggest as a solution - do a bank run.
You said some good thing But not sure how exactly BoA is in trouble BoA has $3T in assets. Losing $120B from one asset class will probably not be significant
I'm guessing they hedge them too. And how much of a withdrawal is needed at BOA to make a bank run possible? This might be very large number. It's a buffet owned ( lot of stake ) bank too.
Not sure if assets mean anything.asset minus liabilities would mean something. If the $120b loss is significant part of book value..it is a significant impact . Believe book value is somewhere $270b plus.
Big banks are not gonna be affected by this by any meaningful amount.
Larp harder
Can you refer me
This is what happened with Silicon Valley Bank. Small banks are more vulnerable than big ones