I am certainly not an expert on bank balance sheets, so take today’s thoughts with a grain of salt and I invite experts to help me out if I made any mistakes in my thinking.
The problem was simple - even without adjusting the loan book, stop reaching for yield via long dated investments. The management kept going long duration on investments even in an environment where the only direction for rates was up (given rates had been unprecedentedly lower for longer) AND in context where rates moving up were the discussion in the market. Just bad management- I.e. risk management and Risk Management function subordinated to the Business imperative of short term P&L incentivized by bonus / remuneration structure.
BTW bank boards will often be a part of the problem as few will not back Business over Risk Management. (….To get to the top in Risk Management you have to ‘ make the Business happy’ 😉).
Banks are inherently unstable entities as they rely on faith in the system. That's in short supply these days.
The problem was simple - even without adjusting the loan book, stop reaching for yield via long dated investments. The management kept going long duration on investments even in an environment where the only direction for rates was up (given rates had been unprecedentedly lower for longer) AND in context where rates moving up were the discussion in the market. Just bad management- I.e. risk management and Risk Management function subordinated to the Business imperative of short term P&L incentivized by bonus / remuneration structure.
BTW bank boards will often be a part of the problem as few will not back Business over Risk Management. (….To get to the top in Risk Management you have to ‘ make the Business happy’ 😉).