Wednesday, July 3, 2013

Sheila Bair: transparency needed to assess impact of rising interest rates on banks

As reported by Bloomberg, Sheila Bair is worried about the impact on banks of rapidly rising interest rates.

To assess the impact of rapidly rising interest rates, Ms. Bair says you need to know

Higher rates may allow banks to charge more for loans, which could improve their net interest margins, Bair said. 
“A lot of that will depend on how fast their deposits reprice as interest rates go up,” she said. “If their funding cost goes up faster, that could be a problem.”...

A jump in rates could also mean banks will face losses on their portfolios of debt securities, ... 
“You need to look at what kind of securities, how many, the duration and yield of their longer-dated securities,” Bair said. “Who’s exposed here and who isn’t?”
In short, in order to assess the impact of a rate increase on a bank you need to know its current global asset, liability and off-balance sheet exposures.

Regular readers recognize this as the transparency your humble blogger has been saying is needed and which banks do not provide.

The lack of disclosure results in banks being "black boxes" where market participants can only guess at the value of their contents.

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