Hacker News Reader

It maybe impossible to predict what the Fed would do but it is certainly possible to avoid a lot of the damage by duration matching of assets and liabilities. e.g. Do not take short term deposits in checking that are callable at any time and invest them in 10 year maturity instruments. No issues at all taking proceeds from 5 year CDs and putting them into 5 year maturity bonds.

View on HN

avoid a lot of the damage by duration matching of assets and liabilities

Respectfully, you have misunderstood the situation.

This has almost nothing to do with duration matching assets and liabilities. That's how it works on the loan portfolio side of a bank. This has to do with how bonds work.

If you buy $10MM of a bond with a 3% coupon and rates for the same duration bond go to 5% then you have a significant capital loss. Depending on how you classified the investment under FASB 115 rules (HTM, AFS, Trading) you can telegraph to the market that your capital situation is dire which can then cause a run on the bank as we've seen multiple times in the last several weeks.

Reply on news.ycombinator.com