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Banks load up on duration risk

Aug. 23, 2017 9:58 AM ETKBE, IAT, KRE, KRU, QABA, KRS, KBWB, KBWR, WDRW, DPST, FTXOBy: Stephen Alpher, SA News Editor
  • New FDIC data show the percentage of bank assets that won't mature or change rates for more than five years hit a new high in Q2.
  • "It’s a struggle for everybody in the industry,” says the head of a Florida lender. "You could be smart all day long waiting for rates to increase, and you’ll get killed by investors” who want to see loan growth.
  • Adding to the worry of this new interest rate risk is what banks are lending against. Much of the longer-term lending is for commercial real estate, and where five years may been the max in the recent past, lenders will now go out as much as 10 years.
  • So far, it's working out well - long-term rates have stayed low despite a series of Fed rate hikes, and bank earnings in Q2 were up 10.7% Y/Y, according to the FDIC.
  • Source: Rachel Louise Ensign at the WSJ
  • ETFs: KRE, KBE, IAT, KBWB, QABA, KBWR, DPST, KRU, WDRW, KRS, FTXO

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